## Ye a r E n d 22 ## Hiscox Ltd ## Report and Accounts 2022 Hear from senior leaders about Read about how Hiscox is using the energy at Hiscox and the technology to work differently. opportunities ahead. | Chapter 1 | | Chapter 3 | | Chapter 5 | | | --- | --- | --- | --- | --- | --- | | 2 Performance and purpose | | 72 Governance | | 148 Shareholder information | | | 2 Our purpose, values, | | 72 Board of Directors | | 148 Directors’ report | | | | culture and vision | 75 Board statistics | | 151 Directors’ responsibilities | | | 4 Our key performance | | 76 Group Executive | | | statement | | | indicators (KPIs) | | Committee (GEC) | 151 Advisors | | | 6 Our strategy and | | 82 Chairman’s letter | | | | | | how we operate | | to shareholders | Chapter 6 | | | 8 Key risks | | 83 Corporate governance | | 157 Financial summary | | | 12 Business priorities for 2023 | | 88 Compliance with the UK | | 158 Independent auditor’s report | | | 14 Why invest in Hiscox? | | | Corporate Governance | 166 Consolidated income statement | | | | | | Code 2018 | 166 Consolidated statement of | | | Chapter 2 | | 94 Nominations and Governance | | | comprehensive income | | 20 A closer look | | | Committee report | 167 Consolidated balance sheet | | | 20 Chairman’s statement | | 99 Audit Committee report | | 168 Consolidated statement of | | | 24 Chief Executive’s report | | | | | changes in equity | | 42 Capital | | Chapter 4 | | 169 Consolidated statement of | | | 44 Risk management | | 106 Remuneration | | | cash ows | | 48 Stakeholder engagement | | 106 Annual statement from the Chair | | 170 Notes to the consolidated | | | 54 Environmental, social and | | | of the Remuneration Committee | | nancial statements | | | governance (ESG) | 110 Remuneration summary | | 231 Additional performance | | | 60 Task Force on Climate-related | | 112 Annual report on | | | measures (APMs) | | | Financial Disclosures (TCFD) | | remuneration 2022 | 232 Five-year summary | | 122 Implementation of remuneration policy for 2023 126 Other remuneration matters 132 Remuneration policy ## Hiscox is a diversied 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 ofces. ## Our products and services reach every continent, and ## we are one of the only insurers to offer everything from ## small business and home insurance to reinsurance and ## insurance-linked securities. As a Bermuda-incorporated company, Hiscox is not subject to the UK Companies Act. However, the material provisions of Section 172 of the UK Companies Act are substantively covered by the Bermuda Companies Act, which is the applicable legislation that the Company is required to comply with under Bermuda law. As a company listed on the London Stock Exchange, we comply with the requirements set out in the UK Corporate Governance Code 2018 and the Listing Rules and Disclosure & Transparency Rules of the UK Financial Conduct Authority. Our remuneration report is consistent with UK regulations. Any additional disclosures over and above these requirements, have been made for the benet of shareholders, on a voluntary basis. ## Q& ## Energy in collaboration ## Here at Hiscox, we’re working differently. How we ## A: ## Writing the future collaborate to serve our customers and work with Q&A with Joanne Musselle ## Group Chief Underwriting Ofcer our business partners is changing. 16 Opportunity knocks ## Q&A with Paul Cooper We’ve created what we call team charters: these Group Chief Financial Ofcer ## 38 are co-created agreed ways of working with each ## Tech savvy other that balance time in the ofce with time at home, Q&A with Stéphane Flaquet ## Group Chief Operations and with the overarching principle of being there for our Technology Ofcer ## 50 customers. We’re also investing in and using technology ## Brand ambassador in new ways – making it easier for our customers to do Q&A with Regine Fiddler ## Chief Marketing Ofcer, business with us, and using data to deliver intelligent Hiscox USA ## 68 underwriting. Although technology can bring our global ## Going places teams even closer together, we also love connecting Q&A with Jon Dye ## Chief Executive Ofcer, in person to share our ideas and energy on moving the Hiscox UK ## 78 business forward – just like some of our Hiscox Re & ILS ## People person team featured on the cover of this report. Q&A with Nicola Grant Group Chief Human Resources Ofcer ## 102 In the following pages, you’ll nd a selection of Q&A ## Re invention interviews from senior leaders right across our Q&A with Matthew Wilken ## Chief Underwriting Ofcer, business. Not only do they talk about what happened Hiscox Re & ILS ## 144 in the business in 2022 and what’s coming up in ## Network news 2023, they also talk about what brings them energy. Q&A with Markus Niederreiner Managing Director, Hiscox Germany 152 1Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | ## Our purpose, values, culture and vision Nelson Mandela famously said that ‘a good head and a good heart are always a formidable combination’ and I’m pleased to say that both feature heavily in our culture. But having a great culture is not a destination – it takes a continuous commitment to creating and maintaining an environment where people do their best work and quite frankly where they enjoy coming to work. We reect on our culture regularly, we consider how we listen and respond to feedback from colleagues and we’re not afraid to explore new ways of doing this. People recognise the uniqueness of the Hiscox culture and that makes me really proud.” Aki Hussain Group Chief Executive Ofcer 2 Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Our purpose, values, culture and vision | Our purpose | In our 2022 annual global employee | During 2022, we: | | --- | --- | --- | | We give people and businesses the | engagement survey, which was | | | condence to realise their ambitions. | completed by 88% of employees: | | To do this we need differentiated products and services, great talent | and energised and connected teams. | 84% | 645 | | --- | --- | --- | | Success is measured in our reputation | said they felt proud to work for Hiscox. | attracted 645 new talented | | and nancial performance. | | permanent employees. | Our vision For Hiscox to be the leading specialist | insurer in material markets – not the | 8 1% | 390 | | --- | --- | --- | | biggest, but the most respected. | said they would recommend Hiscox as a | promoted 390 existing employees. | | We want to be known by customers | great place to work. | | for being true to our word, by our employees as a great place to work and grow for those who are ambitious | and talented, and as an industry leader | 76% | 70,000 | | --- | --- | --- | | in growth, prots and value creation. | said they believe Hiscox has an | delivered over 70,000 hours of staff | | | outstanding future. | training worldwide. | Our values We have had a strong set of values for decades and they are incredibly important to us; we talk about them often and they guide our decision-making. We want our values Our values to differentiate us, which is why they play an important part in our strategy Courage Human and how we operate, in being a business Dare to take Clear, fair a risk and inclusive our customers can relate to, and in providing all employees with a work Our purpose environment in which they can ourish. We give people We periodically review our purpose, and businesses the values, culture and vision to ensure condence to realise their ambitions. they are still true to the business and Ownership Connected t for the future. Passionate, Together, commercial and build something accountable better Integrity Do the right thing, however hard 3Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | 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 Prot/(loss) before tax ## $4,424.9m $2,928.2m $44.7m | | | 22 | 2,928.2 | 22 | 44.7 | | --- | --- | --- | --- | --- | --- | | 21 | 4,269.2 | 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 | ## Combined ratio Basic earnings/(loss) Ordinary dividend ## 90.6% per share 36.0¢ ## 12.1¢ | 22 | 90.6 | 22 | 12.1 | 22 | 36.0 | | --- | --- | --- | --- | --- | --- | | 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 | ## Net asset value per share Tangible net asset value Return on equity ## 701.2¢ per share 1.7% ## 608.2¢ | | 22 | 701.2 | 22 | 608.2 | 22 | 1.7 | | --- | --- | --- | --- | --- | --- | --- | | | 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 | | 20 2022 20 20 20 20 20 20 20 | 4,424.9 | | | | | | | | 18 | 798.6 | 18 | 726.2 | 18 | 5.3 | | 20 20 20 20 20 20 20 20 20 | | | | | | | | 20 20 20 20 20 20 20 20 20 | | | | | | | 4 Hiscox Ltd Report and Accounts 2022 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Our key performance indicators (KPIs) ## Non-nancial KPIs | UK gender pay gap | London Market broker | UK customer satisfaction | | --- | --- | --- | | 16.0% | satisfaction 79% | 92% | | We measure and monitor the gender pay gap | Each year, we survey our London Market broker | In the UK, customers who speak to one of our | | globally so that, by understanding it, we can | partners to understand more about their | insurance experts in our customer experience | | continue to nd ways to reduce it. In the UK, we | experience of working with Hiscox throughout | centre in York are asked to rate their experience | | have been annually disclosing our UK gender pay | the year. Their feedback is a reection of our | of Hiscox at the end of the call. Whether they | | gap since 2017, and have seen a steady reduction | products and service levels, so receiving | have phoned for advice, a quote, to purchase a | | over time in our UK gender pay gap on a mean | consistently good scores matters to us. | new policy or make changes to an existing one, | | basis. Improving diversity, equity and inclusion | | their feedback helps us to constantly improve | | at Hiscox is a high priority, and this year we have | | our service. | also enhanced our ethnicity reporting to disclose all-staff ethnicity data for the rst time (see page 59). | 22 | 16.0% | 22 | 79% | | 92% | | --- | --- | --- | --- | --- | --- | | 21 | 19.1% | 21 | 71% | 21 | 92% | | 20 | 21.2% | 20 | 69% | 20 | 92% | | 19 | 26.1% | 19 | 78% | 19 | 89% | | | 28.8% | | 76% | | 90% | | Employee engagement | | Germany customer | | US customer reviews | | | --- | --- | --- | --- | --- | --- | | 82% | | satisfaction 96% | | using Feefo 4.6/5 | | | Our annual global employee engagement | | Germany is our largest operation in Continental | | In the USA, we ask customers to review their | | | survey looks at how connected we feel to | | Europe, and here we ask all customers that | | experience of Hiscox post-purchase. We do this | | | Hiscox, our managers, teams and roles. | | purchase a policy to provide feedback on their | | using Feefo, which has a ve-star rating system, | | | The results are shared widely and heavily | | experience so that we can continue to improve | | and are pleased to maintain such high scores | | | inuence our people strategy. Improving our | | our service. This includes quantitative analysis | | year after year, even as the business grows. | | | employee engagement scores was a strategic | | on their experience with us and qualitative | | | | | priority in 2022 as part of our work around | | insight on what they were satised with, whether | | | | | building connected teams with shared values | | they would recommend Hiscox, and any areas | | | | | and we are pleased to report our highest score | | for improvement, so we are pleased to have | | | | | in ten years. | | maintained consistently high scores over time. | | | | | 22 | 82% | 22 | 96% | 22 | 4.6 | | 21 | 64% | 21 | 95% | 21 | 4.8 | | 20 | 68% | 20 | 90% | 20 | 4.8 | | 19 | 71% | 19 | 99% | 19 | 4.8 | 2022 20 20 20 20 20 18 74% 99% 18 4.7 20 20 20 20 20 20 20 | 20 20 20 20 20 | | | --- | --- | | 20 | 5Hiscox Ltd Report and Accounts 2022 | | 20 20 20 20 20 | | 2018 2018 2018 20 20 2018 0.0 12.5 25.0 37.5 50.0 62.5 75.0 87.5 100.0 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | ## Our strategy and how we operate Over the years, we have built a strong In Retail, where more stable returns maintaining balanced portfolios we reputation as a specialist insurer in our have typically offset the greater volatility create more manageable volatility chosen segments. In our big-ticket of our big-ticket businesses, we focus across the Group and are well businesses – Hiscox London Market on building a differentiated brand and positioned to maximise both the and Hiscox Re & ILS – we focus on product offering that customers value. protable, cyclical growth and the building balanced portfolios through structural growth opportunities ahead. controlled growth and with an emphasis Volatility exists in every part of insurance, on leading the business we write. but through a focus on building and A strategy focused on high-quality growth The Hiscox Group comprises four businesses facing different opportunities and challenges, but with a common set of capabilities and the capital support required for success. Balanced portfolio of large and SME and personal lines complex risks • Global risks through • Small and micro businesses Lloyd’s platform • Digitally traded, with e t H • Heritage of deep r k i s low-cost distribution and a c o M x technical expertise n R auto-underwriting o e d t • Leading the market in n a • Partnership management i l o : applying technology to L d capability through x i g o i distribution and underwriting t digital connectivity c a s i People l H and culture Delivers prots and capital Signicant structural generation for reinvestment Brand growth opportunity Underwriting • Specialist reinsurance Technology • Focus on SMEs, l capability a not traded digitally Capital n • Holistic risk insights H o • Leadership in specialist lines i t i i • Expert alternative s • Long-term broker d c a o r capital manager x t partnerships l : R i e a t & e Delivers underwriting prot I L R Delivers stable prot S x o s c and capital-light fee income H i generation and growth 6 Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Our strategy and how we operate | Our strategy in practice | A differentiated offering | | --- | --- | | Opportunity | Global reach | | There is an abundance of opportunity | We are a truly international business, with | | ahead for Hiscox. In many of our | over 3,000 employees across 14countries. | | chosen lines and markets, our market | We invest in local market knowledge | | shares remain small, giving us plenty | and experience to truly understand | | of headroom for growth. This is | the markets we operate in and provide | | where our specialist knowledge | relevant products and services. This | | and multi-year investments in digital | gives us a unique breadth of expertise, | | trading differentiate us. | serving customers from sole traders to | multinational companies and ILS investors. Innovation The insurance industry consists of an Specialist products ecosystem of different types of business; In every part of the Hiscox Group, we there are the ‘wave surfers’ for example, focus on providing products and services who enter the market on the upside of that differentiate us. These range from opportunity and retreat when it recedes. high-value home insurance and ne art Hiscox aims to be a ‘game changer’ – areas where we have deep foundations and here for the long term: innovating to build on – to small business, ood and through long-held market experience kidnap and ransom – where innovative ### Our strength lies in our and underwriting acumen, embracing products and service set us apart. ### mix of business, our brand technology, taking risks to evolve with and lead market change and being Claims experience ### and culture, our people there for our customers. Being true to our word is the cornerstone ### and specialist expertise of our claims service. We know that each ### underpinned by investments Growth customer and each claim is different, which ### in technology. These hard Growth is important to us, but not at the is why we have embedded experienced expense of protability. That’s why our claims teams with specialist product ### won attributes, combined focus is on maximising the structural knowledge in every part of our business. ### with a clear strategy and growth opportunities ahead as we ### focus on execution, position see them in Retail, and in building out Talented people ### us well for the road ahead.” balanced portfolios in our bigger-ticket The quality of our people is a crucial factor businesses where we currently see in our continuing success. Their expertise, Aki Hussain exceptional market conditions. energy and commitment drive our Group Chief Executive Ofcer reputation for quality and professionalism. Volatility In return, we aim to provide a work Our business is naturally exposed to environment that brings out the best volatility. We manage this through our in everybody and rewards hard work. underwriting experience and expertise, our investment in data, and our risk Powerful brand management processes, and we work We have invested signicantly over hard to ensure the risks we take are many years to build a recognised and commensurate with the premium that renowned brand. Our distinctive is paid. marketing campaigns are developed from a deep understanding of our customers and positively contribute to consumer buying decisions. 7Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | ## Key risks* The risk Risk landscape and how we manage the risk As an insurance group, specic risks related to our business include: Strategic risk We consider strategic risks in a holistic way, to better prepare The possibility of adverse outcomes resulting our business for emerging threats, shifting trends, and from ineffective business plans and strategies, opportunities in the environment in which we operate. During decision-making, resource allocation or adaptation 2022, we have remained vigilant to potential adverse impacts to changes in the business environment. The of economic, geopolitical, social, technological and regulatory Group’s continuing success depends on how developments on our Group strategy. Our Group strategy well we understand our clients, markets and the was refreshed during 2022 under new Group Chief Executive various internal and external factors affecting Ofcer Aki Hussain, with a clarity of focus on consistent delivery our business, and having a strategy in place to from our big-ticket businesses, accelerated growth in Retail address risks and opportunities arising out of digital and balanced growth in Retail traded, and has been this. Not having the right strategy could have a communicated across the business throughout the year. detrimental impact on protability, capital position, market share and reputation. The external environment remains complex, uncertain and changeable but our robust strategy means that despite the external headwinds there remains tremendous opportunity for Hiscox in each of our chosen segments. Underwriting risk We continue to improve the quality and balance of our portfolios, The risk that insurance premiums prove insufcient strengthening our pricing and risk selections, and growing to cover future insurance claims and associated where the opportunities are commensurate with the risk. expenses. Likely causes include failing to price policies adequately for the risk exposed, making In 2022, we navigated a set of complex external conditions poor risk selection decisions, allowing insurance which amplied underwriting risks. These ranged from exposures to accumulate to an unacceptable geopolitical tensions (notably, the Russia/Ukraine conict), level, or accepting underwriting risks outside of macroeconomic shifts (particularly increased inationary agreed underwriting parameters. This includes pressures in most Western economies), emerging societal people, process and system risks directly related trends (such as increased propensity to litigation), and the to underwriting, and considers emerging external continued potential impact of climate change. Our active risks such as climate, geopolitical and changing monitoring and enhanced view of economic and social ination, customer trends. impact from supply chain disruptions, heightened threat of cyber attacks, and emerging litigation trends, allowed Hiscox to respond promptly, ensuring our pricing keeps pace with costs. We have updated and evolved our view of property exposure risks from natural catastrophes inuenced by climate change through our set of realistic disaster scenarios (see pages 46 to 47). Our underwriting exposure remains well within our Board-approved risk appetite levels. We are also investing in the underwriters of the future with the roll-out of our innovative and award-winning faculty of * The key risks to which we refer here, and elsewhere in this underwriting training academy, helping manage and document, also constitute the emerging and principal risks required under the UK Corporate Governance Code 2018. mitigate underwriting talent risks. 8 Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Key risks ### The market landscape ### remains complex and ### changeable and we have ### utilised our good risk ### management practices to ### protect and create value for ### customers, employees, our ### business and investors.” Hanna Kam Group Chief Risk Ofcer The risk Risk landscape and how we manage the risk Reserving risk Our consistent and prudent reserving philosophy serves to The Group makes nancial provisions for unpaid manage the risk of insufcient reserves to cover claims cost claims, defence costs and related expenses to and associated expenses. The Group’s reserve levels continue cover liabilities both from reported claims and to be resilient, and we have completed two legacy portfolio from ‘incurred but not reported’ (IBNR) claims. transactions in 2022, which will further limit the potential Reserving risk relates to the possibility of unsuitable for reserve volatility. We have responded to the heightened case reserves and/or insufcient outstanding inationary environment with a detailed review of our key reserves being in place to meet incurred losses ination assumptions against emerging experience and associated expenses, which could affect the and explicitly allowed further reserve margins for uncertainty. Group’s future earnings and capital. Close monitoring of developments will continue in 2023. Credit risk In 2022, many of our counterparties have faced the same The risk of a reinsurance counterparty being external conditions as we have, and there remains an subject to a default or downgrade, or that for any increased threat of global recession, which would in turn other reason they may renege on a reinsurance increase default risk. We have closely monitored our contract or alter the terms of an agreement. The counterparty exposures during the year, and while the risk Group buys reinsurance as a protection, but if factors have increased, our credit exposures remain within our reinsurers do not meet their obligations to us, the Group’s risk appetite. We have taken into account the this could put a strain on our earnings and capital potential economic outlook in our decision-making on and harm our nancial condition and cash ows. outwards reinsurance purchasing for 2023. Similarly, if a broker were to default, causing them to fail to pass premiums to us or pass the claims payment to a policyholder, this could result in Hiscox losing money. Market risk The volatile economic environment during 2022, with sharp The threat of unfavourable or unexpected rises in ination and accelerated interest rate increases, has movements in the value of the Group’s assets enhanced risk in our asset portfolios. Investment losses in the or the income expected from them. This includes year are largely due to mark-to-market adjustments to the value risks related to investments – for example, losses of bond portfolios, which are unrealised. These have potential within a given investment strategy, exposure for signicant upside for 2023. Active decisions over 2022 have to inappropriate assets or asset classes, or made a positive contribution to the investment result, offsetting investments that fall outside of authorised some of the losses, and the outlook for market (asset) risk is strategic or tactical asset allocation limits. expected to improve. 9Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Key risks The risk Risk landscape and how we manage the risk Liquidity risk We have refreshed our liquidity stress testing during 2022 This relates to the risk of the Group being unable to and the Group remains in a strong liquidity position, with meet cash requirements from available resources around $1 billion of fungible liquidity, sufcient to cover within the appropriate or required timescales, such expiring debt obligations, business plan liquidity requirements, as being unable to pay liabilities to customers or and working capital headroom. Liquidity risk is monitored other creditors when they fall due. It could result through the use of a detailed Group cash ow forecast in high costs in selling assets or raising money which is reviewed by management quarterly, or more quickly in order to meet our obligations, with the frequently as required. potential to have a material adverse effect on the Group’s nancial condition and cash ows. Regulatory, legal and tax governance We monitor the regulatory, legal and tax compliance landscape This relates to the risk that the business fails for emerging changes to local and international laws and to act, or is perceived to have failed to act, in regulations in the jurisdictions we operate. accordance with applicable legal, regulatory, and tax requirements in all of the jurisdictions The regulatory landscape in 2022 was dominated by the where the Group operates. The regulatory, legal rapid application of a large volume of international sanctions and tax environment continues to be complex, against Russian interests following the invasion of Ukraine, with frequent changes in rules and expectations which applied at different points throughout the year across which increase complexity in this area. all of our operations worldwide. Our embedded sanctions management processes enabled the compliance team to support the business in quickly responding to the complex and fast-changing sanctions landscape and we also supplemented our sanction-screening processes with additional reviews of the ultimate benecial owners of a large number of insured risks across multiple business lines. The most signicant tax compliance development in 2022 has been the continued movement towards implementation of the OECD’s Global Anti-Base Erosion Model Rules (Pillar Two) at a local level. As well as maintaining a watching brief on the evolution of this initiative, we have also worked with expert advisors and industry bodies such as the Association of Bermuda Insurers and Reinsurers and the Association of British Insurers to ensure industry-specic issues are identied and addressed. We seek to work transparently and collaboratively with our key tax authority stakeholders to anticipate the tax impact of both commercial and legislative changes. We invest in proactive engagement with all of our regulators, including through our participation in the annual college of supervisors, hosted by the Bermuda Monetary Authority, which is an opportunity to update all of our regulators together on strategic developments across the Group. 10 Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Key risks 44 180 Read more on risk management in chapter 2 and note 3. The risk Risk landscape and how we manage the risk Operational risk Risks from people, process, systems and external events are The risk of direct or indirect loss resulting from closely monitored by senior executives across the business. internal processes, people or systems, or from Ongoing competition and retention of talent, heightened threat external events. This includes cyber security risk, of cyber attacks and continued growth in hybrid working which is the threat posed by the higher maturity practices is affecting the operational risk landscape. of attack tools and methods and the increased motivation of cyber attackers, in conjunction with Our approach to monitoring operational risk has been a failure to implement or maintain the systems and adapted to enable the business to monitor the risks with a processes necessary to protect the condentiality, focus on promoting risk awareness and proactive reporting of integrity or availability of information and data. operational incidents. We continue to embed our operational Operational risk also covers the potential for risk management including our defences against, and response nancial losses, and implications from a legal, to, cyber threats. During 2022, we reviewed the Group-wide regulatory, reputational or customer perspective, set of crisis management response plans and performed a for example, major IT, systems or service failures. series of cyber crisis simulations to give our teams rst-hand experience of dealing with a situation, and to test our response plans against potential operational disruption. Talent risk is also being actively managed as part of a continued focus on our employee proposition, which has included the introduction of our all-staff share ownership initiative, HSX:26, and which in 2023 will include new ways to develop and map talent across the Group. In addition, in 2022 mandatory monthly all-staff training was supplemented with additional topical modules such as sanctions, cyber security and risk culture throughout the year. We also delivered additional training to underwriting and claims teams on the sanctions developments referred to under the regulatory, legal and tax governance section (see page 10). Climate change related risk We monitor climate change related risk through a number This relates to the range of complex physical, of lenses, including underwriting selection, pricing, transition and liability risks arising from climate multi-year view of natural catastrophe risk, asset types, and change. This includes the risk of higher claims as developments in potential climate litigation. Every year we a result of more frequent and more intense natural run a range of realistic disaster scenarios, updated with our catastrophes; the nancial risks which could arise in-house climate research (see pages 46 to 47), and we from the transition to a lower-carbon economy; participate in regulatory stress testing exercises. and the risk that those who have suffered loss from climate change might then seek to recover those We have introduced investment environmental, social and losses from others who they believe may have been governance (ESG) dashboards for each of our insurance responsible. Climate change related risk is not carriers and we continue to embed our greenhouse gas targets considered a stand-alone risk, but a cross-cutting for the Group, which in 2023 will include the development of a risk with potential to amplify each existing risk type. supporting action plan. 11Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | ## Business priorities for 2023 Business priorities for 2023 We will balance risk and opportunity in 2023 through a focus on ve core priorities. ## 1 2 ### Getting the balance right ## Realising the Managed volatility ### between risk and opportunity ## retail opportunity during big-ticket growth ### is crucial. Our business ### priorities for 2023 build on Following multi-year investments in Hiscox London Market and Hiscox ### our 2022 achievements, and | | technology, in 2023 we will focus on | Re & ILS continue to enjoy favourable | | --- | --- | --- | | I’m particularly excited about | realising the opportunities that exist | market conditions in many lines. | | | across Hiscox Retail. This means | As in 2022, we will remain focused on | ### what technical excellence further leveraging our head start in leveraging our unique combination of ### means for us in the year digital small business insurance by underwriting and digital expertise to grow ### ahead and how that plays building an SME ecosystem through protably – particularly in those areas ### out against a backdrop which to serve this high-growth segment where we have market-leading expertise of the economy, and investing in brand. and experience – while also managing ### of retail growth and huge Having nalised systems transformation volatility. In addition, we will sharpen ### big-ticket opportunity.” in the USA, and as new systems our focus on potential new emerging continue to come on board across opportunities, for example, around Joanne Musselle Europe, we are well positioned to cater supporting the economy to transition Group Chief Underwriting Ofcer to changing buying behaviours with to low-carbon intensity industries. efcient customer-focused processes. 12 Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Business priorities for 2023 Business priorities for 2023 We will balance risk and opportunity in 2023 through a focus on ve core priorities. ## 3 4 5 ## Technical excellence Operational leverage Connected and ## energised teams | Technical excellence is a multi-year | Steps taken to evolve our operating | We will build on the strong progress | | --- | --- | --- | | priority thanks to a long-held focus | model during 2022 are already | made in 2022 to embed hybrid | | on active underwriting portfolio | enhancing ownership and speed | working and develop new employee | | management. We continue to focus | of decision-making, and we will have | benets such as an enhanced | | on portfolio optimisation – addressing | a similar focus on operational leverage | sabbatical policy, the introduction | | lower decile lines through careful | in 2023. Beyond the rebalancing of our | of Hiscox days and HSX:26 – our | | management, and clearing the path for | global versus local capabilities, this will | all-staff share ownership initiative. | | growth in top quartile lines, as well as | mean further establishing technology as | The next stage of employee proposition | | those areas experiencing favourable | a competitive advantage, particularly in | development will happen during 2023, | | market conditions. During 2023, we | Hiscox Retail. It will also mean enhancing | in line with our ambitions to be an | | will continue to develop our technical | our process management capabilities | employer of choice within our sector. | | capabilities, insights and tracking | to improve efciency and effectiveness | In addition, we will look to nd new | | mechanisms, and further dene our | and increase the speed of execution, to | ways to develop and map talent across | | sustainable underwriting strategy. | support the Group not only through its | the Group that can support the delivery | | | next phase of growth, but also as we look | of our strategy. | to realise economies of scale through a sharpened focus on expense efciency. 13Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | 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 growth opportunity compounding shareholder returns We aim to grow the business in a way that We aim to balance consistent and is organic, sustainable and protable, progressive shareholder cash returns and the abundance of opportunity we with reinvestment into the business see ahead supports this continued to support long-term growth and trajectory. In Hiscox Retail, where we are value creation, and as we face into focused on building scale, our market favourable market conditions in our shares remain modest and the size of big-ticket businesses, we have the addressable market is huge, giving sufcient capital to realise the us plenty of headroom for growth. In our attractive opportunities ahead. big-ticket businesses, where we now lead on more open market risks, our combination of underwriting and digital expertise differentiates us. | 15 5% | O v e r 1. 5 m | | --- | --- | | total shareholder return over the last | total number of retail customers across | | ten years. | the Group. | ### We are facing some of the ### most attractive market ### conditions we’ve seen in ## $ 1.7 b n Two-thirds ### years, with tremendous returned to shareholders over the last Hiscox London Market currently leads ### pricing opportunities in ten years*. over two-thirds of the business it writes. ### big-ticket lines and a chance ### to substantially grow our ### market share in retail. ## A rated 90% ### Every part of our business over ten years of S&P A rating. Hiscox London Market combined ratio ### is structurally and nancially below 90% for three consecutive years. ### well positioned to contribute ### to our continued growth, ### with solid foundations that | | 50m SMEs | $1b n | | --- | --- | --- | | can support the weight of | size of the addressable SME market | Over $1 billion in premium delivered by | | | across the UK, USA and Europe. | Hiscox Re & ILS for the rst time in 2022. | ### our ambitions.” Paul Cooper Group Chief Financial Ofcer ## $269.5m † underwriting prot in 2022, the best in seven years. † * Based on special, ordinary and Scrip Dividends Underwriting prot is dened as segment income less paid to shareholders since 1January2013. expenses, excluding investment result, for Retail, Excludes the nal dividend proposed for 2022. London Market and Re & ILS. See note 4 on page 194. 14 Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Why invest in Hiscox? Big-ticket business Hiscox Re & ILS Hiscox London Market Retail business Hiscox UK Hiscox Europe Hiscox Special Risks Hiscox USA Hiscox Asia * 2020 restated for Hiscox Special Risks. Total Group controlled premium ($m) 4,935 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 2,500 000 2, ,500 1 Hiscox Retail Hiscox London Market, Hiscox Re & ILS ,000 1 500 15Hiscox Ltd Report and Accounts 2022 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020* 2021 2022 ## Q& ## A: with Joanne Musselle Group Chief Underwriting Ofcer ## Writing the future ## Shaping the future of underwriting ## means embracing risk, investing in ## data and analytics, and taking a fresh ## approach to training underwriters. > 16 Hiscox Ltd Report and Accounts 2022 17Hiscox Ltd Report and Accounts 2022 Joanne Musselle has been with Hiscox since 2002 and held a number of senior positions in both claims and underwriting. In 2019, she became Group Chief Underwriting Ofcer, driving rigorous standards and using data and analytics to meet the challenges of the future. with your own. And then it’s the people. way through some unprecedented There is just this rare quality to the people situations. Our focus on data and I work with: professional, brilliant at what analytics is denitely giving us a better ## Q& they do, experts, collaborative. I don’t understanding of how a book of business nd it hierarchical either. It’s genuinely is performing. But I’ve been really keen ‘best answer wins’. We want to get to the not just to respond to the here and now, ## A: best answer, and that can come from but really think about where we want with Joanne Musselle anyone at any time. I love that courage is to take the organisation. We’ve spent Group Chief Underwriting Ofcer one of our values, because it gives you a huge amount of time and energy on license to say: “I know everybody wants something we’re calling ‘underwriting to turn left, but I want to turn right. Can evolution’. Part of this is around critically we discuss why...” assessing our portfolios. Are we in the right lines? Are our portfolios structurally | | Q: For the past couple of years, you’ve | protable? How are we assessing | | --- | --- | --- | | | been the Group Chief Underwriting | emerging risk? Do we need to develop | | | Ofcer. What does that involve? | new propositions, new products? I think | | | A: It’s all about the technical side – | our portfolios are probably now in their | | | the risk selection, pricing, exposure | best shape for a long time, but there’s | | Q: You’ve been with Hiscox for over | management, reinsurance, product | always more we can do. | | two decades now – what was it that | development, wording. We have | | | drew you here in the rst place? | six business-unit-focused Chief | Q: So where else do you think the | | A: I’d been busy working for some of the | Underwriting Ofcers around the Group | portfolio should go? | | big corporates, always in the technical | who are responsible for the day-to-day | A: Like others in the industry, our | | areas, whether it be on the reserving | execution of our strategy, but my job is | commitment to sustainable underwriting | | side, pricing, underwriting or claims. | to set that strategy with the Board. It’s | means we’ve got an exclusion strategy | | I’d been in Asia for about ve years, | big things like how much risk we want | – that’s focused on eliminating our | | working for big global insurers, when I | to take, what new areas we may want | underwriting exposure to some of the | | got a call about a role at Hiscox. I knew | to move into, how we structure our | worst carbon emitters, like coal plants, | | Hiscox from the syndicate side, but | propositions and how we think about | by 2030. But exclusion isn’t enough. | | back then the retail company was tiny, | emerging risks. | We’ve always invested heavily in climate | | with premiums of just over £200million. | | and climate research and we’re a big | | And there was something in it that really | I always think that no matter what role | natural catastrophe underwriter, so | | struck a chord. It was like a green-eld | you’ve got, it has three parts to it. The | we’ve got a lot of technical expertise | | site. So when I met some of the team, | rst part is just doing the job well, doing | in that space, and we can utilise that | | the idea of helping build out the retail | those things I’ve just mentioned. The | expertise to help build out products | | side sounded really exciting. And | second is evolving the role for the future, | around changing risks such as ood. | | unlike the big global insurers it was | investing in things like data and analytics. | We can also help our customers to | | already customer-centric rather than | And then the nal part, which is the most | navigate the low carbon transition, | | product-centric, which really appealed | important, is people: making sure we’re | for example, in big-ticket lines | | to me. What I didn’t know then was that | engaging, attracting and developing the | where we’re providing liability cover | | I would be coming for 20 years! | people around us. | for decommissioning fossil fuel | infrastructure or where we’re supporting Q: So what is it that’s kept you here Q: How has Hiscox’s approach to the installation of renewables. We’re a so long? underwriting evolved in recent years? niche and specialist insurer, so we’re not A: Lots of things, but rst and foremost A: It’s obviously been a complex going to be able to play everywhere, but the values – you can’t stay somewhere period for everyone, and like the rest we need to be challenging ourselves on for that long if the values don’t chime of the world we’ve had to navigate our our role in the transition as best we can. 18 Hiscox Ltd Report and Accounts 2022 There is just this rare quality to the people I work with: professional, brilliant at what they do, experts, collaborative. I don’t nd it hierarchical either. It’s genuinely ‘best answer wins’. We want to get to the best answer, and that can come from anyone at any time.” | Another thing that plays into this, and it’s | what we call the ‘faculty of underwriting’. | | --- | --- | | going to be a big focus of mine in 2023, is | We spent a lot of time coming up with | | what I call ‘risk mitigation’. It’s something | the capabilities that we think an | | I’m really passionate about. If you have | underwriter of the future will need, but | If you have a house, there’s a risk your a house, there’s a risk your house might we spent just as much time thinking house might ood. You buy insurance ood. You buy insurance to transfer that about how we deliver those capabilities. to transfer that risk. But if we can risk. But if we can mitigate that risk, if we I’ll give you an example. The old model mitigate that risk, if we can help you can help you as a homeowner prevent a was to sit in training sessions for days as a homeowner prevent a ood ood taking place, that’s good for you, on end, staring at PowerPoints. But taking place, that’s good for you, it’s it’s good for us and it’s good for society. people these days don’t learn like that. good for us and it’s good for society.” Reducing that risk also feeds back into They want to learn in quick, bite-sized our pricing. We’ve done a couple of bursts, so we’ve partnered with a gaming things already, like LeakBot – a device company to develop training apps that that we’ve given to our homeowners tap into the psyche of competition, which shuts off the mains if there’s a presenting underwriting questions leak. We’ve also spent a huge amount in a really addictive way. We hadn’t of time looking at cyber resilience for anticipated quite how competitive our small businesses, putting in place really people would be, and we’ve got people practical tools that can empower them doing these modules eight, nine, ten to mitigate their cyber risk. times to keep improving their score which is brilliant. Q: What kind of opportunities are being opened up by advances in Q: Outside of work, what gives data and analytics? you energy? A: One of my jobs is risk selection and A: My family and friends for sure. I’m a making sure that we really understand mum of two teenagers, so it’s like living in the risks we underwrite, so we need student accommodation at the moment! to utilise data for that to improve our More personally, I just get a buzz out of performance. But we’re also thinking a run. I am not an Olympic runner, I’m about how we utilise data to improve the never going to win a race, but for me, customer experience. For example, you for my mental health, just to clear my might ask a customer tens of questions mind, I absolutely love it. You don’t need when they buy insurance from you, anybody else and you can do it anywhere but if some of those answers already in the world – just put on your trainers exist externally, then can you pull that and off you go. information together in such a way that results in you asking the customer less questions? And then, also thinking about how to use data and technology to reduce our costs. That’s really important, because if we’ve got lower costs, we can reect that back to our customers in terms of pricing. Q: What’s your approach to training and developing underwriters? A: Recently, we’ve been building out 19Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | ## Chairman’s statement This good performance has been offset by unrealised investment losses on our bond portfolios, but we expect these to unwind as our bonds mature. An important job for any Chairman is ## It has been a pivotal year for Hiscox, with new overseeing a Chief Executive transition ## leadership and an evolved strategy being and I have been glad not only to ensure a seamless transition from Bronek to ## tested by a turbulent operating environment, Aki, but also to work more closely with ## and I am very pleased with our performance.” Aki in this, his rst year as Group Chief Executive Ofcer. Aki has brought Robert Childs new insights and developed a strong, Chairman talented Executive team. Aki has embedded a rened strategy that is reducing the volatility prole for the Group. He has also assembled an impressive team who are delivering technological and operational changes that are being well received by both business partners and our people. People We had to navigate a challenging employment market during the year, as the war for talent continued. I am therefore pleased that we have not | Before I provide my usual commentary | Aki in this, his rst year as Group Chief | only maintained top talent, but also | | --- | --- | --- | | on the business, we have announced | Executive Ofcer. Aki has brought new | attracted many more. | | with our 2022 results that I will be | insights and developed a strong talented | | | stepping down as Chairman during | Executive team, and when the time | Aki’s rst key appointment was Paul | | 2023, and the Board has commenced | comes, I will retire a happy shareholder. | Cooper, our Group Chief Financial | | the search for my successor. | | Ofcer, who joined the business in May. | | | And now for the balance of my report. | He has over 25 years of nancial services | | After 37 years at Hiscox and 50 in the | | experience across both the retail and | | industry I am very happy that I will be | Performance | Lloyd’s insurance markets and is already | | passing the baton when the business | It has been a pivotal year for Hiscox, with | bringing valuable external perspectives | | is in such a good place – excellent | new leadership and an evolved strategy | to our organisation. I remember Paul | | leadership, strongly capitalised, with | being tested by a turbulent operating | from his previous time at Hiscox, when | | favourable market conditions and | environment, and I am very pleased | he was Finance Director for Hiscox UK | | huge opportunities ahead. | with our performance. | and Europe, and have enjoyed working | with him again. | An important job for any Chairman is | Although it has been an active year | | | --- | --- | --- | | overseeing a Chief Executive transition | for catastrophes, both man-made | After 15 years with the Group, Amanda | | and I have been glad not only to ensure | and natural, we have made a strong | Brown, our Chief Human Resources | | a seamless transition from Bronek to | underwriting prot of $269.5 million | Ofcer retired during 2022, and I would | | Aki, but also to work more closely with | thanks to the discipline of our teams. | like to thank her for her sage counsel and | 20 Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | Chairman’s statement | | | information | summary | 21Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | Chairman’s statement | | | information | summary | ### I am extremely proud that ### we are reporting our best ### employee engagement score ### for ten years. Not only do the ### overwhelming majority of our ### people feel proud to work ### at Hiscox (84%), they would ### also recommend Hiscox as ### a great place to work.” clarity of thought over the years, which I have personally valued and so too has our Board. She has been succeeded by Nicola Grant, who joined us from ING Group and brings a wealth of experience in engaging and leading large workforces across multiple markets. At the same time, Jon Dye joined as Hiscox UK Chief Executive Ofcer. Jon is a recognised industry leader with solid CEO experience and a fantastic track record of building protable businesses. His broker relationships, leadership and energy are already making a difference. These appointments, along with the promotion of Stéphane Flaquet to Group Chief Operations and Technology Ofcer, have resulted in a very capable new Group Executive Committee formed under Aki’s leadership. Beyond the top team, I am extremely proud that we are reporting our best employee engagement score for ten years. Not only do the overwhelming majority of our people feel proud to work at Hiscox (84%), they would also recommend Hiscox as a great place to work (81%) and believe that Hiscox has an outstanding future (76%). Aki has to take a lot of credit for this, along with his leadership team. Environmental, social and governance (ESG) In a year of pronounced geopolitical and macroeconomic challenges, ESG has not been far from our minds and conversations. Aki will cover in his Chief Executive’s report the environmental and governance aspects that the business has been thinking about, and the huge amount of work that has been done to support 22 Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | Chairman’s statement | | | information | summary | | our colleagues on the ‘social’ side | risks. The opportunities in our big-ticket | | --- | --- | | of ESG. But as Chair of the Hiscox | businesses are huge and the rating | | Foundation in the UK, our charitable | environment is with us in a way that | | foundation, I am especially proud that | you could argue we haven’t seen for | | we have donated $1.8 million to good | decades. We will still be trimming the | | causes this year. | sails in various places, recognising our | lower volatility prole, but there is nothing This has included one-off support and like a price rise to reduce volatility. multi-year partnerships, in line with our three strategic pillars of charitable The opportunities are equally huge in our giving, as well as targeted donations retail businesses, where the hard work that recognise the Russia/Ukraine over the last three years to replace core conict, oods in Pakistan, and the systems is reaching a point where they rising cost of living where – to reect can propel these businesses in their next the rising costs that charities are growth phase. With new leadership in facing – we increased our donations Hiscox UK and strengthened leadership to multi-year partners in line with in Hiscox USA and Hiscox Europe, each ination for the current nancial year. business is attractively positioned for It is also why we are working with what lies ahead. MyBnk for an extended period to support their delivery of expert-led In concluding this, my last Chairman’s nancial education to school children statement, I truly believe we are on the and young people across the UK, cusp of something great – ready to recognising the importance of make the most of the excellent markets learning nancial capability skills before us. from a young age. I know that playing an active part in our communities matters to our people too | because they spent over 1,400 hours | Robert Childs | | --- | --- | | volunteering during 2022, supporting | Chairman | | not only some of our ofce charity | 8 March 2023 | partners such as Spear Bethnal Green and Colchester Foodbank, which are chosen by employees, but also causes that are personally important to them. Outlook We live and work in turbulent geopolitical times and this is where the insurance market can come into its own. As a specialist insurer offering coverage across classes that include political violence, kidnap and ransom, cyber, the full range of professional indemnity and property damage, we are well placed to help customers manage their 23Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | ## Chief Executive’s report Europe we passed the milestone of half a billion Euros of gross premiums written. Importantly, we have achieved our target of returning the Retail combined ratio to within the 90% to 95% range a year ahead of schedule, which is a testament ## I am very pleased with the progress made to the decisive actions we have taken. ## across the Group during 2022, as we delivered The business is in great shape and it ## the strongest underwriting result in seven years. is at this juncture that after 37 years ## We have a rened strategy, a new experienced of committed service, Robert Childs, Hiscox Chairman, has announced his ## and energetic leadership team, we have intention to step down. I have personally ## made signicant progress in rolling out new greatly valued his ability to drive clarity in our decision-making, his advice and ## generation technology in the USA and Europe human approach, and the support he ## and we are enjoying our highest employee has given me ever since I joined the business and particularly now as Group ## engagement scores in ten years.” Chief Executive Ofcer. He has been instrumental in transforming Hiscox Aki Hussain into a successful global business Group Chief Executive Ofcer and I wish him all the best in his well-earned retirement. Rates 2022 performance benetted from a favourable rate environment across | In my rst year as Group Chief Executive | industry. These are the best conditions | all Hiscox businesses, with rates in | | --- | --- | --- | | Ofcer, I am pleased to report the | we have seen in over a decade and our | reinsurance now exhibiting all the signs | | Group delivered a strong result during | talented and experienced underwriters | of a hard market. This is underpinning | | a year of heightened geopolitical | have the nancial exibility to deploy | continued rate strengthening in primary | | uncertainty, economic unpredictability | capital to make the most of the | insurance, mainly wholesale. | | and natural catastrophe losses. An | opportunities ahead. | | | underwriting prot of $269.5million | | Hiscox Re & ILS benetted from an | | (2021:$215.6million) and a combined | 2022 has been a year of delivery for | average risk adjusted rate increase | | ratio of 90.6% (2021:93.2%) is a | our Retail business with many key | of 13% in the period, above our | | testament to the disciplined execution | milestones achieved. In the USA, our | expectations. This is driven primarily | | of our strategy of building more | largest retail market, we completed the | by North American property and | | balanced portfolios to drive reduced | strategic repositioning of the broker | retrocession, with rates up 14% and | | earnings volatility. The current complex | channel business and substantially | 16% respectively, with Florida exhibiting | | underwriting environment presents | delivered the technology transformation | particularly hard market conditions. | | opportunities for businesses like ours, | programme of our digital partnerships | Specialty lines also experienced | | with underwriting excellence at the | and direct (DPD) business, setting us up | double-digit increases, driven by cyber | | core, backed by a strong balance sheet. | for growth acceleration in 2023. In the | and terrorism, with rates up 42% and 26% | | I am excited about the hard market in | UK we transitioned to new leadership | respectively. Since 2017, this business | | reinsurance, which is a necessity to | under Jon Dye, an industry veteran with | has achieved cumulative rate increases | | reverse multi-year losses suffered by the | huge ambition for our business, and in | of over 50% across the portfolio. | 24 Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | Chief Executive’s report | | | information | summary | 25Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | Chief Executive’s report | | | information | summary | | The reinsurance marketplace is | and traditional professional indemnity. | | --- | --- | | undergoing a seismic shift, with 2022 | In Hiscox USA on average rates were | | rates above the 2012 level, and we | up 7%, with strong rate growth in cyber | | anticipate material improvement across | and allied health. Hiscox UK saw rate | ### The reinsurance marketplace | nearly all lines for 2023. Hurricane Ian | increases of 5% on average, with strong | | | --- | --- | --- | | served as a catalyst, among other | rate momentum in cyber, commercial | is undergoing a seismic shift, | | factors, following many years of | property and entertainment. | | ### with 2022 rates above the losses across the sector, leading to ### 2012 level, and we anticipate signicant improvement in the rating Overall, the premium growth achieved ### material improvement across | environment. Capacity continued to | by the Group through rate and indexation | | | --- | --- | --- | | reduce during 2022 both in the traditional | in 2022 kept pace with our ination | nearly all lines for 2023.” | | arena and the ILS space, as a result | assumptions. As we look forward, the | | | of another year of industry losses and | rate outlook for 2023 remains strong, | | | volatility in the investment markets. | particularly in reinsurance. | | This is leading to a true hard market | for catastrophe-exposed risks. We | Claims | | --- | --- | | are witnessing the best market | 2022 was another year with elevated | | conditions in over a decade and have | large losses, both natural catastrophe | | deployed additional capital at January | and man-made, so it is pleasing to | | renewals, achieving risk-adjusted rate | see that in spite of these challenges | | increases of 45% in property and 26% | Hiscox maintained strong protability, | | in specialty. | delivering a Group combined ratio of | 90.6%. There are no material changes | In 2022, Hiscox London Market | to previously announced net loss | | --- | --- | | benetted from an average rate | estimates for Hurricane Ian and | | increase of 6%, which was ahead | the Russia/Ukraine conict. | of our expectations. Since 2017, this | business has achieved cumulative rate | As previously communicated, the | | --- | --- | | increases of 70%. Rate growth remained | Group reserved $135million net of | | positive for all classes of business except | reinsurance including reinstatement | | D&O, which is already very attractively | premiums for Hurricane Ian, based | | priced, having achieved cumulative | on an insured market loss of $55 billion. | | rate increases of over 240% since the | The majority of our exposure is in | | end of 2017. Overall the rate outlook | big-ticket lines: $90million net in | | for 2023 is positive, underpinned by | Re & ILS and $40million net in London | | the macroeconomic environment and | Market. This represents a modest | | reinsurance costs, with the strongest | exposure for Hiscox London Market, | | growth expected in terrorism and | as the business had pulled back from | | property lines. | under-priced Florida business in the | preceding years. Estimated net losses While pricing in Hiscox Retail is for the Retail portfolio are modest at generally less cyclical, in 2022 it $5million. benetted from an average rate increase | of 7%. This was led by Hiscox Europe | The Russia/Ukraine conict tragically | | --- | --- | | where on average rates were up 8%, | continues to be a live event. The human | | underpinned by double-digit rate | cost of this event is immense and | | increases in cyber, commercial property | long-lasting and our thoughts are with | 26 Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | 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 2022: $4,935.4m Period-on-period in constant currency Small Reinsurance Property Global Art and Specialty Marine commercial private client casualty and energy ## +5% +25% -17% +9% +12% +4% -5% ## $1,705m Professional liability Errors and omissions Private directors and ofcers’ liability Cyber Commercial small package Small technology and media Healthcare related ## Media and $1,14 5m entertainment Property Marine Aviation Specialty ## $466m ## $458m $451m Commercial ## Home and contents Kidnap and ransom $388m property | | Fine art | Contingency | | | | --- | --- | --- | --- | --- | | Onshore energy | | | Public directors and | $322m | | | Classic car | Terrorism | ofcers’ liability | | USA homeowners Cargo Luxury motor Product recall Large cyber Flood programmes Marine hull Asian motor Personal accident General liability Managing Energy liability general agents Offshore energy International property Marine liability 27Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | Chief Executive’s report | | | information | summary | Hiscox Retail 2022 2021 $m $m Gross premiums written 2,272.1 2,290.0 Net premiums written 1,976.8 1,969.3 Underwriting prot 101.9 34.9 Investment result (98.9) 26.9 (Loss)/prot before tax (3.4) 54.9 Combined ratio (%) 94.8 98.9 | all those who are directly or indirectly | | accounts. These deals, together | | | --- | --- | --- | --- | | impacted. Hiscox’s estimated ultimate | | with the two LPTs completed in 2021, | | | loss from all risks in the Ukraine and | | mean that 23% of 2019 and prior years’ | | | Russia remains unchanged at $48million | | gross reserves are reinsured up to a | | | | 1 | | Hiscox Retail achieved | | net of reinsurance | , with just under | 1-in-200 downside risk. | | | three quarters of it attributable to | | | a combined ratio of | | Hiscox London Market. The majority of | | At a Group level we also hold margin | | ### 94.8%, returning to the London Market’s and all of Re & ILS’s above best estimate as an additional ### 90%-95% combined reserves comprise incurred but not buffer to compensate for the uncertainty ### ratio range a year ahead | reported (IBNR) losses. Hiscox London | in timing and cost of claims. At the end | | | --- | --- | --- | | Market exited the aviation hull insurance | of 2022, the margin stood at 8.9%, | of the stated target, | | business in 2018 and political risk/trade | down from 11.0% in the rst half of | | ### despite the complex credit business in 2017. the year. Through a combination of ### macroeconomic executing a number of LPTs and ### environment.” | While inationary pressures continue | proactive action on addressing ination, | | --- | --- | | to persist across our markets, the | uncertainty on prior-period losses | | impact on our business is relatively | is reducing, consequently we have | | contained due to the short-tail nature | moderated the margin to be more in | | of our book, with the average duration | line with our target range of 5%-10%, | | of our liabilities at 1.9 years. Hiscox has | although remaining at the upper | | a conservative reserving philosophy; | end of the range. Furthermore the | | continuously monitoring claims ination | favourable prior-period run-off is | | trends and evaluating reserve adequacy | reected in reserve releases of | | to ensure we maintain protability | $239million in 2022, which are | | and a robust balance sheet position. | from all business segments. | In the rst half of the year we proactively | strengthened our best estimate by | With regards to the new business we | | --- | --- | | $55million as a precautionary net | are writing, we mitigate inationary | | inationary load, and this remains | pressures through a combination of | | unchanged after undertaking a | exposure indexation and rate increases. | | similar review at the full year. | Our current pricing and reserving | assumptions incorporate expected | Throughout the course of 2022 we | ination which is a multiple of experience | | --- | --- | | continued to proactively take action to | in recent times. Therefore, the increased | | manage volatility from the back-book, | premium we are collecting across the | | in particular in longer-tail lines where | Group is keeping pace with ination | | we have either exited portfolios or | and our view of risk assumptions. | rened our underwriting strategy. In | March, our Hiscox Re & ILS business | Hiscox Retail | | --- | --- | | executed an LPT, buying protection | Hiscox Retail comprises our retail | | for our casualty reinsurance portfolio | businesses around the world: Hiscox UK, | | that is in run-off. Following that, in July, | Hiscox Europe, Hiscox USA and Direct | | Hiscox London Market undertook an | Asia. In this segment, our specialist | | LPT to reinsure circa $116 million | knowledge and ongoing investment in | | of reserves for 1993 to 2018 year of | the brand, distribution and technology | reinforce our strong market position in 1 Including impact of reinstatement premiums. an increasingly digital world. 28 Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | Chief Executive’s report | | | information | summary | | Hiscox Retail grew gross premiums | journey entirely online, our combination | Hiscox Europe | | --- | --- | --- | | written by 5.1% in constant currency to | of talented people, supported by these | Hiscox Europe provides both personal | | $2,272.1 million (2021:$2,290.0million) | technology investments, creates the | lines cover, including high-value | | and added over 55,000 net new | platform and opportunity to serve | household, ne art and classic car, and | | customers. Our commercial lines, | millions of customers. The technology | commercial insurance for small- and | | which constitute over three quarters | enables greater levels of algorithmic | medium-sized businesses. | | of Retail gross premiums written, | underwriting, process automation, | | | grew 6.7% in constant currency, with | improved efciency and will create | Hiscox Europe is the strongest growing | | strong momentum across the UK and | operating leverage over time. | business segment in the Hiscox Retail | | Europe. We moderated our growth | | portfolio. Gross premiums written | | in Hiscox USA as we completed the | We will invest incrementally in brand | were up 13.6% in constant currency to | | US broker portfolio repositioning and | across our Retail business in 2023. | $543.7 million (2021: $532.0 million), | | substantially delivered the US DPD | The Hiscox brand already has a strong | surpassing the €500 million milestone | | technology implementation. On a | market position, and it is the right time | for the rst time. All ve markets in Europe | | go-forward basis, Hiscox Retail grew | to bolster it further to drive growth over | delivered double-digit growth in constant | | 6.6% in constant currency. With these | the long term. | currency, demonstrating our attractive, | | programmes complete, Hiscox Retail | | differentiated position and underpinned | | growth is expected to trend towards | Hiscox UK | by strong growth in commercial lines | | the middle of the 5%-15% range in 2023. | Hiscox UK provides commercial | of 16.2%. | insurance for small- and medium-sized | Hiscox Retail achieved a combined | businesses, as well as personal lines | Hiscox Germany, Europe’s largest | | --- | --- | --- | | ratio of 94.8%, returning to the | cover, including high-value household, | market, grew gross premiums written | | 90%-95% combined ratio range a year | ne art and luxury motor. | by 11.3% in constant currency to | | ahead of the stated target, despite the | | cross the €150 million mark. Hiscox | | complex macroeconomic environment. | Hiscox UK gross premiums written were | Germany is a market leader in cyber, | 2 | We expect to operate within this range | up 2.8% on a constant currency basis, | and continues to innovate and develop | | --- | --- | --- | | going forward. | but reduced by 6.4% to $778.0million | products that meet changing customer | | | (2021: $831.1 million) in US Dollars due | needs. In 2022, our German business | | Our Retail business has been | to the depreciation of the Sterling. The | launched a modular cyber product for | | undergoing a multi-year technology | business delivered a solid performance, | businesses with less than €2.5 million | | transformation programme. The UK | with commercial lines showing strong | in revenue. The modular approach | | is developing next-generation e-trade | growth of 8.5% in constant currency, | allows customers to add cover as their | | capabilities for less complex broker | boosted by rate improvements and | needs change, and delivers a more | | intermediated business, complementing | excellent retention rates. | efcient claims service should the need | | the direct-to-consumer digital platform. | | arise. After some early success, we plan | | In 2022 we migrated the vast majority | 2022 marked strong growth in the | to roll-out this new product in our other | | of the US DPD business onto the new | number of online sales for UK direct | European markets. | | technology stack, and core platform | commercial and we expect this trend | | | replacement is also underway in | to continue. The pace of our digital | The introduction of new core technology | | Germany and France, with Benelux | capability development, including | in our European businesses remains on | | to follow in 2023. Convenience for | e-trading for brokers, has signicantly | track. This multi-year project is being | | the customer is at the heart of our | picked up this year and we continue | implemented in phases with efciencies | | distribution philosophy. Whether our | to drive several strategic initiatives to | gained as it progresses. Germany and | | customers want to connect to a Hiscox | improve our core digital capabilities. | France are already well underway and | | employee or complete the customer | | with Benelux to follow in 2023. The | | | The impact of the UK weather has | implementation is less complex than in | 2 Under IFRS 4. been within our expectations. the USA, as it is a country-by-country 29Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | Chief Executive’s report | | | information | summary | roll-out, and the digital business in In the US DPD business, all Europe is nascent, although the potential direct-to-consumer customers have is signicant. We look forward to seeing been on the new technology platform signicant benets upon completion since June. Direct to consumer growth, ### In the rst half of 2023 we will | of the project not only for the business, | as expected, was lower during the | | | --- | --- | --- | | in areas such as automation and | peak period of migration in the rst half | launch a new ESG-focused | | efciencies in policy administration, | of 2022, but has started to accelerate | | ### Lloyd’s sub-syndicate. It will but also for customer experience in notably since the end of the third quarter ### be complementary to Hiscox terms of market connectivity. as the combination of new technology, ### London Market’s existing a focused marketing drive and improved ### Hiscox USA conversion rates take effect. portfolio and will provide Hiscox USA focuses on underwriting ### access to additional capacity small commercial risks distributed The migration of our partnership business, ### for qualifying clients with through brokers, partners and which represents two-thirds of US DPD, ### positive ESG credentials, | direct-to-consumers using both | commenced in the second half of 2022, | | | --- | --- | --- | | traditional and digital trading models. | with the vast majority of partners now live | such as renewable power | | Our aspiration here remains to build | on the new platform. Mirroring the direct | | ### generators and energy America’s leading small business insurer. experience, growth slowed during the ### storage providers.” peak migration period in the latter part of | 2022 was a year of transition for | 2022. The partnerships business is now in | | --- | --- | | Hiscox USA, as the business delivered | the embedding phase which is expected | | on two major change initiatives – the | to extend into the second half of 2023, as | | broker portfolio repositioning, through | over 50,000 agents and producers who | | which we have exited circa $160million | have access to the new portals, need time | | of business since 2019, and the | to develop familiarity with the technology | | re-platforming of the US DPD business, | and for partners to begin re-marketing | | which is now substantially complete. | the Hiscox platform. Consequently, | | Hiscox USA’s gross premiums | we anticipate the production from new | | written grew 2.1% to $897.9million | and existing partners to gradually ramp | | (2021:$879.2million), up from 1.2% | up through 2023, after a subdued rst | | at the half year, as the effect of the | quarter 2023. We therefore expect US | | broker business repositioning was | DPD to grow towards the middle of 5% | | weighted towards the start of | to 15% range in 2023. Once embedding | | the year. | of partnership business is complete, | growth is expected to accelerate. While the overall growth of the US | broker business was impacted by the | Our partnerships team has already | | --- | --- | | tail of planned actions, in the second | started to take actions to increase | | half, we have seen green shoots as | activity, at both the partner and agency | | our regional underwriting teams are | level, to encourage the marketing of | | back on the front foot, re-engaging | our platforms and to increase usage | | with brokers to write protable | as we emerge from this period of | | business in our go-forward lines. | technology migration. Following a | | Our refreshed US senior leadership | two-year hiatus to the onboarding | | team and an enhanced business | of new partners, in January 2023 | | development function will strengthen | we added 15 new partners to our | | the momentum behind this. | digital platform and expect them to | 30 Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | Chief Executive’s report | | | information | summary | Hiscox London Market 2022 2021 $m $m Gross premiums written 1,114.9 1,171.4 Net premiums written 735.1 711.5 Underwriting prot 110.0 89.6 Investment result (54.4) 15.8 Prot before tax 53.0 104.8 Combined ratio (%) 84.8 89.1 commence production in the second portfolios and the impact of Russian 2023, while continuing to maintain and third quarter. sanctions, which mainly affected our a disciplined approach. upstream energy and space portfolios. | The near- and long-term market | In addition, ood growth was tempered | We are also investing in our digital | | --- | --- | --- | | opportunity is incredibly attractive. | as competitive dynamics changed with | capabilities. Advances have been | | I expect momentum to build through | National Flood Insurance Programme | made in the digitalisation of pricing and | | the year as marketing takes effect; | (NFIP) reducing prices, while we | underwriting models across general | | as new and existing partners and | maintained our risk-based pricing | liability and terrorism. Throughout | | agents ramp up production and as | approach. We expect competitive | 2022 and into 2023 we have also been | | technology benets such as the | dynamics to improve following | redesigning our FloodPlus and BindPlus | | potential for higher conversion rates | Hurricane Ian and as the demand for | systems so that they can be deployed | | begins to have a discernible impact. | a ood-specic product continues to | in the Cloud, an important step which | | | grow in the US market given recent | will make them scalable for future | | Hiscox Asia | events. Net premiums written increased | growth. At the same time, we have | | DirectAsia grew gross premiums | 3.3%, as strong rate momentum made | continued to make underwriting and | | written by 12% in constant currency | retaining more premium attractive. | pricing changes to maintain protable | | to $52.5million (2021: $47.7million). | Hiscox London Market delivered a | growth in both lines. We will continue | | Momentum picked up markedly in | $110.0million underwriting prot, | to drive further automation across | | Singapore with the top line growing | up 22.8% on the prior period. The | our business to enhance our ability | | 19.5% due to the opening up of | combined ratio of 84.8% showed a | to select and price risks more effectively. | | international travel, boosting travel | 4.3 percentage point improvement | | | insurance sales and motor partnerships. | year-on-year, despite a $40million | We also continue to innovate. For | | Thailand’s premium growth was | net loss from Hurricane Ian and | example, as economies across the | | underpinned by partnership business. | $34million net loss from the | globe are looking to transition to more | | | Russia/Ukraine conict. This is the | sustainable energy production models, | | Hiscox London Market | third consecutive year in which Hiscox | we are developing our strategy of | | Hiscox London Market uses the global | London Market’s combined ratio | participating in this shift. In the rst half of | | licences, distribution network and | has been below 90%, which is a | 2023 we will launch a new ESG-focused | | credit rating of Lloyd’s to insure | testament to the underwriting focus | Lloyd’s sub-syndicate. At its early stage | | clients throughout the world. | on creating more balanced and | it will be nested within Syndicate 33 | | | protable portfolios. | and lean on its existing stamp capacity. | | Hiscox London Market delivered a | | It will be complementary to Hiscox | | strong result in 2022, despite another | Since 2018 we have reduced our | London Market’s existing portfolio | | active year of large losses. Our focus | property binder exposure by just under | and will provide access to additional | | on building balanced portfolios | a half, non-renewing business which | capacity for qualifying clients with | | delivered strong growth in selected | did not meet our protability hurdles. | positive ESG credentials, such as | | lines, namely public D&O, general | The positive impact is clear to see in the | renewable power generators and energy | | liability, upstream energy, terrorism | robust underwriting result. I am pleased | storage providers. To further enhance | | and cargo; and at the same time | to report that the multi-year major | the scale of this ESG syndicate, we | | reduced our exposure to what was | changes in the property binder book | will partner with third-party capital on | | under-priced catastrophe-exposed | are now substantially complete and | our specialist ESG positive portfolio to | | business in the binder portfolio. | we consider the remaining book to | supplement Syndicate 33’s capacity. | | Overall, gross premiums written | be rate adequate. On completion | To build the portfolio we will utilise our | | declined 4.8% to $1,114.9million | of this activity and in light of the | existing underwriting talent and broker | | (2021:$1,171.4million), with 3.3 | ongoing attractive market conditions, | relationships to access clients while | | percentage points due to planned | we expect Hiscox London Market | continuing to develop deep in-house | | reductions in property binder | to grow gross premiums written in | expertise in the specialist sectors | 31Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | Chief Executive’s report | | | information | summary | Hiscox Re & ILS 2022 2021 $m $m Gross premiums written 1,0 37.9 8 07. 8 Net premiums written 26 8.1 274.2 Underwriting prot 57.6 91.1 Investment result (34.0) 8.8 Prot before tax 21.5 98.5 Combined ratio (%) 81.6 68.0 | focused on the transition to the green | This was partly offset by $79 million net | Russia/Ukraine conict. Central banks | | --- | --- | --- | | economy, such as electric vehicles | outows in the second half. Despite the | responded with sharp rises in interest | | and renewables. | positive inows of AUM in 2022, there is | rates, pushing rates to levels last seen | | | uncertainty within the market regarding | before the 2008 nancial crisis. Despite | | The outlook for 2023 is positive, as we | the availability of new or replacement | high ination and tightening monetary | | are looking to broaden out in specialty | ILS capital in the near term, as a result of | policy, unemployment remained low and | | and casualty lines through disciplined | multiple years of signicant loss events, | economic growth was resilient across | | growth in attractively priced business. | latterly combined with economic volatility | many regions. However, having seen | | We will do this by working with our | in the form of rapidly rising rates and | interest rates rise sharply in developed | | key broker relationships to seek and | decade-high ination. In part, it is this | markets, the focus shifted from ination | | support attractive and protable | uncertainty that drove improved rates | to the impact of higher interest rates | | growth opportunities on their merit, | and tightening of terms and conditions | on the economy. Growth expectations | | and driving the entrepreneurial spirit | during the January 2023 renewals. | were revised down across the globe, | | of our talented underwriters. | It is into the resulting highly attractive | and expectations of recession rose in | | | market that Hiscox is deploying its own | key economies. | | Hiscox Re & ILS | organically generated capital to ll the | | | The Hiscox Re & ILS segment comprises | gap in the market that has been left by | The upward move in risk-free rates, | | the Group’s reinsurance businesses | a combination of third-party capital | along with a weakening growth outlook, | | written in London and Bermuda and the | contraction and retrenchment by | led to a repricing across a wide range of | | insurance-linked security (ILS) activity | some reinsurers. | markets. Diversication was of limited | | written through Hiscox ILS. | | help to portfolios given the broad spread | | | Hiscox Re & ILS delivered a strong | of losses affecting most asset classes. | | Hiscox Re & ILS gross premiums written | combined ratio of 81.6%, despite the | Bond markets sold off as risk-free rates | | increased by 28.5% to $1,037.9million | $90million net loss from Hurricane Ian. | rose, leading to some of the weakest | | (2021: $807.8 million) crossing the | We continued to drive underwriting | bond returns in decades. Credit spreads | | $1billion milestone for the rst time, as | discipline by further reducing our exposure | widened leading to losses on corporate | | we benetted from further hardening | in the risk excess class. We have also | bonds. Global equity indices ended the | | market conditions. Much of the growth | successfully reduced our participations | year down almost 20%, albeit a rally into | | was supported by ILS inows in the rst | on aggregate excess of loss deals and | year-end moderated the losses. Against | | half of the year, while broadly maintaining | will continue this disciplined underwriting | this backdrop, the investment loss of | | our net written premium position. | action in 2023 designed to reduce | $187.3 million was not unexpected. | | Excluding reinstatement premiums, | exposure to secondary perils. | However, with 93% of our xed income | | gross premiums written grew 34.4%. | | portfolio in investment grade bonds, most | | | Investments | of the losses were mark-to-market. Our | | The business delivered a particularly | The total investment result was a | risk asset portfolios fell, though some | | strong performance in retrocession | loss of $187.3 million (2021: prot of | exposures made absolute gains helping | | and North American and international | $51.2million), or a negative return of 2.6% | to alleviate the losses at the margin. | | property catastrophe lines, underpinned | (2021: positive return of 0.7%). Assets | | | by increased demand and continued | under management as at 31 December | The reinvestment yield on the bond | | pressure on the supply of capacity in | 2022 were $7.1 billion (2021: $7.3 billion). | portfolio rose again in the nal quarter to | | both the traditional and ILS space. | | reach 5.1% as at 31 December 2022, up | | | Concern over ination dominated the | from 4.8% at the end of September2022. | | ILS assets under management (AUM) | economic picture during 2022, as it | The change during 2022 from the | | was $1.9 billion as at 31 December2022 | remained at the highest levels in decades | starting yield of just 1.0% is | | ($1.4billion at 31 December 2021). | and proved persistent, exacerbated | transformational for forward-looking | | During the rst half of the year we | by disruptions to the global supply | returns. The short-dated nature of | | secured net AUM inows of $511 million. | chain, lockdowns in China and the | our portfolio means reinvestments | 32 Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | Chief Executive’s report | | | information | summary | Strategic focus Total Group controlled premium for 2022 100% = $4,935.4 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 23% 27% Large property 8% Tech and media casualty 7% Casualty 8% Art and private client 9% Specialty – terrorism, product recall 5% Specialty – kidnap and ransom, contingency, personal accident 4% Marine and energy 7% 33Hiscox Ltd Report and Accounts 2022 Small property 2% | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | Chief Executive’s report | | | information | summary | Portfolio – asset mix Investment portfolio $7.1 billion as at 31 December 2022 Asset allocation (%) Debt and xed income holdings 76.3 Cash and cash equivalents 18.9 Equity and investment funds 4.8 Debt and xed income holdings credit quality (%) Gvt 19.6 AAA 9.3 AA 8.9 A 29.0 BBB 26.6 BB and below 6.6 Debt and xed income holdings currency split (%) USD 72.5 GB P 15.1 EUR 8.8 CAD and other 3.6 34 Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | Chief Executive’s report | | | information | summary | are quickly raising the cash coupon currently underpinned by component of returns. The portfolio improved underwriting conditions has much improved prospects for and investment result outlook. investment returns in 2023 and beyond. ### The Board believes that | | We have maintained a relatively | The Group’s available liquid resources | | --- | --- | --- | | paying a dividend is one | defensive portfolio coming in to 2023. | are sufcient to execute against the | | | Duration remains short and credit quality | business plan and act as a buffer to | ### important indicator of the remains high. Risk asset exposures cover opportunities or market events, ### nancial health of the are modest, with no direct exposure to with fungible liquidity of around ### Group. Having carefully | | UK commercial real estate, giving us | $1billion. During September 2022, | | --- | --- | --- | | considered the capital | room to add risk should opportunities | the Group issued £250 million of | | | arise. Otherwise we continue to look to | ve-year unsubordinated unsecured | ### requirements of the 3 incrementally improve long-term risk notes . The transaction was in excess ### business, the Board and capital-adjusted outcomes through of three times oversubscribed, ### has recommended to further diversication. demonstrating strong sentiment ### shareholders for approval and market condence in the Group. Dividend, capital and The issuance of the notes was timed ### the payment of the nal liquidity management to coincide with the redemption of ### dividend at 24.0 cents 4 In the continuing uncertain £275million unsubordinated debt ### per share.” | macroeconomic and geopolitical | during December2022. The funds | | --- | --- | | environment, Hiscox remains strongly | raised mean that the Group continues | | capitalised against both regulatory | to have strong liquidity and appropriate | | and rating agency requirements. | leverage of 20.6%. | | The Hiscox Group Bermuda Solvency | The Board believes that paying a | | Capital Requirement (BSCR) | dividend is one important indicator | | ratio is estimated at 197%, as at | of the nancial health of the Group. | | 31December2022. The slight reduction | Having carefully considered the | | to prior year follows an increase in | capital requirements of the business, | | capital allocation to Hiscox Re & ILS at | the Board has recommended to | | January2023 renewals as we deployed | shareholders for approval the payment | | capital in a highly attractive market, | of the nal dividend at 24.0 cents per | | in line with expectations. We remain | share. This brings our total dividend | | comfortably above the S&P ‘A’ rating | for the year to 36.0 cents per share. | | threshold and signicantly above the | The record date for the dividend will | | regulatory capital ratio requirement. | be 5May2023 and the payment date | will be 13June2023. The Board | As the year progresses, we will | proposes to offer a Scrip alternative, | | --- | --- | | continue to assess the opportunity | subject to the terms and conditions of | | and may deploy further capital if | Hiscox’s 2022 Scrip Dividend Scheme. | | the market conditions persist. | The last date for receipt of Scrip | | As we write the vast majority of our | elections will be 22May2023 and the | | reinsurance business in the rst half, | reference price will be announced on | | there is an element of seasonality in | 31May 2023. Further details on the | the half-year solvency position which is smoothed out at the year-end 3 Fixed rate of 6.00 per cent paid annually in arrears. 4 due to continued capital generation, Fixed rate of 2.00 per cent paid annually in arrears. 35Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | Chief Executive’s report | | | information | summary | | dividend election process and Scrip | reect our intent and approach. In | made solid progress towards embedding | | --- | --- | --- | | alternative can be found on the investor | addition, in recognition of the difcult | them in the business. We have started | | relations section of our corporate | economic circumstances currently | to develop a low-carbon transition | | website, www.hiscoxgroup.com. | facing our workforce we also paid out | plan for the Group to set out in more | | | a cost of living lump sum to our UK, | detail the journey towards meeting our | | People | European and Bermudian employees | ambitious targets, and intend to publish | | During the year I took important steps | most impacted by the rising costs of | more information on this in line with UK | | to refresh our leadership team – the | energy, food and fuel. | regulatory requirements. We are also | | Group Executive Committee (GEC) | | making good progress towards the rst | | – and the full team is now in place. | The rened strategy, improving nancial | of our interim targets for transitioning our | | Jon Dye, our new UK Chief Executive | performance and distinctive benets | investment portfolio, with approximately | | Ofcer, and Nicola Grant, our new | are having a positive effect; this | 20% of our corporate bond portfolio | | Group Chief Human Resources Ofcer, | is captured in our 2022 employee | having net-zero/Paris Agreement-aligned | | joined the GEC in September; as well as | engagement scores which are our | targets as at year-end. | | Stéphane Flaquet who was appointed | highest in ten years. Our people believe | | | to the newly created role of Group Chief | in the strategy and in our outstanding | We are continuing to consider the | | Operations and Technology Ofcer. Paul | future. Clearly an engaged employee | right approach for Hiscox when it | | Cooper also joined the Executive team | base bodes well for the drive and energy | comes to sustainable underwriting | | earlier in the year as our new Group Chief | needed to seize the opportunities ahead | and investing, taking into account | | Financial Ofcer. The GEC contains a | and grow our business. | both our ESG exclusions policy and | | wealth of experience and knowledge | | our responsible investment policy. | | combined with energy and passion and | Finally, I want to highlight the completion | In big-ticket underwriting, we monitor | | I look forward to working with them to | of our long-anticipated London ofce | all risks according to their ESG | | deliver on the many opportunities that | move. On 31 October our London-based | prole and continue to decline and | | lie ahead of us. | team moved into new ofce space at | non-renew risks in line with our | | | 22Bishopsgate. This is the location | exclusions policy. Through this same | | At the forefront of my mind is always that | where we have the largest concentration | tracking process we are able to monitor | | people are our greatest asset. The future | of people and is a meaningful milestone | the positive risks we are supporting | | success of Hiscox depends on our ability | for Hiscox. The carefully thought out | such as wind and solar energy, and | | to attract, nurture and retain high-calibre | space has been designed as a place for | electric vehicles. In reinsurance, we | | talent. A key focus this year has therefore | us to carry out our business in a modern | have exited from all business where 30% | | been to enhance our employee value | and collaborative environment, enabling | or more of subject premium is derived | | proposition to not only encourage these | new ways of working with each other | from restricted areas, and we continue | | behaviours but exceed our employees’ | and with our business partners. | to monitor our portfolio composition | | expectations. I am proud of the benets | | against our ESG focus areas, capturing | | that are available at Hiscox such as | Environmental, social and | programmes declined for ESG | | HSX:26, under which every permanent | governance (ESG) | reasons in regular internal reporting. | | employee owns a part of the Group | During 2022, we focused on further | We have also made strong progress | | through the share grant we launched | embedding our ESG structures, | on the investment side where ESG is | | earlier in the year, and our sabbatical | processes and policies and I was | fully embedded in our investment | | programme which entitles staff with | particularly proud to see our efforts | processes: net-zero wording is now | | ve years of continuous service to an | to date recognised in an MSCI ESG | in all segregated investment manager | | additional four weeks of paid leave. | rating upgrade from A to AA. | mandates; we have enhanced the | | We also refreshed our global diversity, | | ESG credentials of our emerging | | equity and inclusion (DEI) strategy and | We started the year with the publication | market bond portfolio; and an | | vision across the Group and put in | of our new greenhouse gas (GHG) targets | investments-focused ESG dashboard | | place a new Group DEI policy to better | for the Group and since then, we have | is now a regular feature of Investment | 36 Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | Chief Executive’s report | | | information | summary | | Committee reporting. Our sustainable | Our London Market business is building | | --- | --- | | assets including green/ESG bonds | a solid and dependable track record | | are now over $300 million, with over | of protability, and with the property | | 5% of bond portfolios in green and | portfolio changes now mostly complete, | ### Our people believe in ESG-labelled bonds. I expect to see the business grow as ### the strategy and in our we continue to deploy underwriting I am especially excited about the aggregate with discipline in the improving ### outstanding future. Clearly potential for our ESG-focused market conditions. In addition, with ### an engaged employee base Lloyd’s sub-syndicate. the work underway to create leading ### bodes well for the drive and capabilities in digital trading and ### energy needed to seize the 2023 outlook underwriting the energy transition, I am very optimistic about the outlook there is excitement in the business about ### opportunities ahead and for 2023. Our Retail business is the coming years and the opportunity ### grow our business.” primed to accelerate growth towards to play a key role in the London Market. the middle of 5%-15% range in 2023. | We have completed the necessary | We expect the investment result, which | | --- | --- | | underwriting actions in the US broker | has been a headwind over the last | | business and substantially completed | 12months, to become a tailwind in | | the technology transition in US DPD; the | 2023, as bond reinvestment yields | | UK is reinvigorated under new leadership | reached 5.2% at the end of February. | and ambition, and Europe continues to | go from strength to strength. Marketing | Last but not least, change in how we | | --- | --- | | spend has increased in all Retail markets | present our numbers to the market is | | to support our growth efforts. | coming in the form of IFRS 17; however, | this is purely a change in accounting The reinsurance market conditions standard, which has no impact on our are the best we have seen in over a business fundamentals. The strategy decade. Hiscox is a net beneciary and the economics of the business of reinsurance rate hardening. The are unchanged. scale and breadth of our business, as well as the long-standing relationships Finally, I would like to thank our developed with our reinsurance employees, business partners and panel, have been an essential part shareholders for their continued support. of ensuring we secured the required retrocession protection to support our 2023 business plan. | Hiscox Re & ILS has the expertise, strong | Aki Hussain | | --- | --- | | balance sheet and nancial exibility | Group Chief Executive Ofcer | | to capitalise on the current trading | 8 March 2023 | conditions. As a result of deploying our organic capital at 1January2023 renewals, our net premiums written in January 2023 were up 49% year-on-year. In 2023, net premium written growth is expected to exceed gross premium written growth. 37Hiscox Ltd Report and Accounts 2022 ## Q& ## A: with Paul Cooper Group Chief Financial Ofcer ## Opportunity knocks ## Hiscox is nancially sound and poised ## for signicant growth across its many ## business units. The challenge for the ## nance function is to help realise that ## rich potential. > 38 Hiscox Ltd Report and Accounts 2022 39Hiscox Ltd Report and Accounts 2022 Paul Cooper joined Hiscox as Group Chief Financial Ofcer in May 2022, after working in Chief Financial Ofcer roles at M&G Plc, Arrow Global and Canopius. Paul had previously served as Finance Director for Hiscox UK and Europe from 2006 to 2011 during a key phase in the Company’s growth. A: The business itself is really well opportunity in a signicant market that placed. It’s a diverse business with a is currently fragmented, under-served number of different business units and and ripe for disruption from a digital ## Q& what’s pleasing is that they all have very perspective. I think we’ll see big gains strong potential, they’re all very well set in there over the coming years. terms of performance and capability. And | A: | that’s against the background of a strong | Q: Is much change currently required | | --- | --- | --- | | with Paul Cooper | rating environment. Pricing is going in the | within the nance function? | | Group Chief Financial Ofcer | right direction, and has been for four or | A: Finance is a function that demands | | | ve years, and that looks set to continue. | constant change – it’s always going to | | | So, the commercial aspect is strong, | be either a recipient of change because | | | the culture is strong, and the balance | the business itself is evolving, or it needs | | | sheet is really strong too. Liquidity is | to be proactively improving itself to help | | | good. With all that in place, my focus | drive developments elsewhere. As a | | | can be on how I help the business grow | general philosophy, I’m always looking | | | and drive more value, rather than – if | at what we need to change in order to be | | | I were joining a company undergoing | better. Right now, more specically, there | | | turnaround – shoring up the balance | are some major changes required for | | Q: You’re what’s known in the | sheet and xing things. | the implementation of a new accounting | | business as a ‘boomerang’ – you | | standard called IFRS 17, which is placing | | left Hiscox in 2011 before returning | Q: Where do you see opportunities | an enormous demand on all nance | | a decade later. What were your | for growth? | professionals in the insurance industry. | | impressions of the Hiscox culture the | A: Everywhere – absolutely everywhere. | There’s a signicant level of attention on | | rst time around, and has it changed | As I said, all of the business functions | it, and its scale and complexity are not to | | much in the interim? | are ring on all cylinders. If you take | be underestimated. | | A: The rst time around, the business | the Re & ILS business, for example, | | | seemed very entrepreneurial, very | they’re going through one of the most | Q: In layman’s terms, what is IFRS 17? | | ambitious, always trying new things. It | attractive rate environments they’ve | A: There are a number of elements, but | | had a really strong vision for growing the | seen in decades. From their perspective, | essentially it changes the way that | | business, not only in the Lloyd’s space, | the opportunity for growth is very | you measure some aspects of the | | but also across retail and internationally. | signicant. There’s just a question of | prot-and-loss account and the balance | | The people here were a pleasure to | risk appetite – while those rates are very | sheet. The biggest part of that is that | | work with, and they all wanted to do the | attractive, you don’t want to bet the | you now discount your claims liabilities. | | best for the Company. There was a real | house on going after them and end up | There’s also a lot more presentation and | | sense that people wanted to get on, | with an unbalanced portfolio. Rates are | disclosure required. From now on, we will | | that they liked coming to work. I think | also continuing to harden in the London | have to report on a much more granular | | what’s very pleasing on my return is that | Market, so we see real opportunities for | level. The biggest challenge in the short | | those aspects still prevail. If anything, | growth in that area too. | term is that this has placed signicant | | they’ve been reinvigorated under Aki’s | | demand on us to make changes to | | leadership. He’s got loads of energy, | Then there’s our Retail business. Europe | systems and data, which in turn adds to | | and I think he’s employed people who | is fantastically positioned – it’s been | the demands being placed on the nance | | have the same vigour. We’re all here | growing in all of its six markets. The | function. IFRS 17 is a big deal, layered with | | to deliver on the potential that Hiscox | UK has been re-energised under the | complexity. It will take time to bed in, but | | undoubtedly has. | leadership of Jon Dye, who knows the | it does mean that, in future, transparency | | | market well and has the pedigree to | levels will be greater, so our performance | | Q: How would you characterise the | deliver a really protable business. And | will be easier to understand and easier to | | condition of the Group’s nances? | then the US business has an amazing | compare with other businesses. | 40 Hiscox Ltd Report and Accounts 2022 We’ve had quite a sizeable investment in systems and processes in recent years, so the question now is, how do you maximise those? We have more and more data available, and I think there’s a competitive edge to be gained by optimising its use and understanding its dynamics.” Q: Aside from that, what have your In time, we’re condent that those losses other major priorities been in your will be reversed. It’s clear that markets rst year in the role? understand and appreciate that this A: One accomplishment has been to situation is not permanent, so our share The business itself is really well engage more with capital markets price has not really been impacted. placed. It’s a diverse business and develop a closer relationship with a number of different business with equity analysts. We also Q: What will your approach be to units and what’s pleasing is that essentially renanced our debt in developing people within the they all have very strong potential, September, and that’s no small nance function? they’re all very well set in terms of exercise. In the grand scheme of A: That’s a really interesting question. performance and capability. And things, though, I would say that the big Traditionally, and I don’t ascribe this that’s against the background of priority is to do things faster: report in only to Hiscox, nance people tend a strong rating environment.” a faster time, improve our forecasting to become technical experts in a capability, improve our management particular area – they become the information so that we can better best reserving actuary, or the best understand performance. We’ve had capital actuary, or the best nancial quite a sizeable investment in systems planning and analysis (FP&A) person. and processes in recent years, so The problem is that at a certain level the question now is, how do you of seniority, you really need to have maximise those? We have more and a broader, more diverse experience. more data available, and I think there’s By necessity, if you want to be a chief a competitive edge to be gained by nancial ofcer, you’ve got to know how optimising its use and understanding things work across nancial reporting, its dynamics. We’ve made a good start actuarial, FP&A, capital, reserving, and in that space, and it’s already showing. so on. A management position requires There are aspects of performance that not only a depth, but also breadth of we can measure now that we simply understanding. At the very least, you wouldn’t have been aware of six need to know how to get the right people months ago. in to give you the right insights and help you get to the right judgements, and that Q: You’ve come back into the role at does require experience. I’d like to see an interesting time from a political more emphasis placed on people moving and macroeconomic perspective. around within nance, so that they get What has that meant for the business? that greater breadth of understanding. A: Clearly, the most notable thing has been the Russia/Ukraine conict. From Q: Outside of work, what gives a reserving perspective, that’s all been you energy? well covered off, and we’ve managed A: Loads. I love to run with the dog. our exposures very well. But on the asset I socialise with good friends and family. side of things, it has stoked ination, And I watch Arsenal play football – and that’s had an impact on central although that creates a different stress! banks, which have responded by driving I’m a season-ticket holder. They’ve been up interest rates. As a consequence, very good recently, but that brings an we’ve had unrealised losses on bonds angst of its own – worrying about when in our investment portfolio, which they’re going to fall from grace, rather has obscured the strong underlying than why they’re doing so badly. It’s insurance performance of the business. almost worse! 41Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | ## Capital The Board monitors the Group’s capital proposed changes to the model used strength, ensuring Hiscox remains to assess capital adequacy within the suitably capitalised for regulatory and insurance sector, for public consultation. rating purposes, and to fund future However, further rounds of industry growth opportunities. consultation with S&P have since been required, and S&P is now expected to | Monitoring of the Group’s capital | publish the conclusions of their additional | | --- | --- | | requirements is based on both external | consultation in the rst quarter of 2023, | | risk measures, set by regulators and | with the intention of introducing the new | | rating agencies, and our own internal | framework for adoption later in the year | | guidelines for risk appetite. | should no further rounds of consultation | be required. While some uncertainty | The Group measures its capital | remains as to the nal details of the new | | --- | --- | | requirements against its available | S&P model, based on the information | | capital, which is dened by the | which S&P has provided to the industry | | Group as the total of net tangible | so far, we expect the Group’s rating to | | asset value and subordinated debt. | remain unchanged. We monitor our | | At31December2022, available capital | capital positions from our rating agencies | | was $2,427million (2021:$2,599million), | very closely and factor them into our | | comprising net tangible asset value of | capital management plans; being an | ### Our capital resilience is | | $2,096million (2021:$2,226million) | A-rated business is important to us and | | --- | --- | --- | | the result of our long-held | and subordinated debt of $331million | our intention is to maintain our current | | | (2021:$373million). | strong ratings. | ### active capital management ### approach and, in light of The Group can source additional funding The Group manages the underwriting ### current and upcoming market | | from its borrowing facilities which | portfolio so that, in a 1-in-200 aggregate | | --- | --- | --- | | conditions, positions us well | comprise a revolving credit and Letter of | bad year across all major risk types, it | | | Credit facility, as well as a Tier 1 Funds | will still be able to meet its regulatory | ### for funding future growth.” at Lloyd’s facility. Standby funding from capital commitments. A market loss of these sources comprised $931million this magnitude would be expected to Gareth Jones (2021:$941million), of which $331million bring about increases in the pricing of Interim Group Head of was utilised as at 31December2022 risk, so the Group’s capital strength and Capital Management (2021:$331million). nancial exibility following this scenario means we would be well positioned to Our key rating agencies, A.M. Best, take advantage of any opportunities that S&P and Fitch, calculate capital might arise as a result. adequacy by measuring available | capital after making various balance | The Group is regulated by the Bermuda | | --- | --- | | sheet adjustments. Available capital is | Monetary Authority (BMA) under | | compared with required capital, which | the Bermuda Group Supervisory | | incorporates charges for catastrophe, | Framework. The BMA requires Hiscox to | | premium, reserve, investment and credit | monitor its Group solvency and provide | | risk. Our interpretation of the results of | a return in accordance with the Group | | each of these models indicates that we | Solvency Self Assessment (GSSA) | | are comfortably able to maintain our | framework, including an assessment | | current A ratings. In December 2021, | of the Group’s Bermuda Solvency | | S&P published details of signicant | Capital Requirement (BSCR). The BSCR | 42 Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | Capital | | | information | summary | 191 | The Hiscox businesses are rated | Read more about our nancial condition | | --- | --- | | ‘A’ by A.M. Best and S&P and A+ | in our nancial condition report | | by Fitch. Read more in note 3 to | hiscoxgroup.com/about-hiscox/ | | the nancial statements. | group-policies-and-disclosures. | model applies charges for catastrophe, Projected capital requirement premium, reserve, credit and market risks to determine the minimum capital required to remain solvent throughout the year. The GSSA is based on the Group’s own internally-assessed capital requirements and is informed by the $2.43 billion available capital Group-wide Hiscox integrated capital model (HICM) that, together with the $2.34 billion available capital (post-nal dividend) BSCR, forms part of the BMA’s annual ## 3.0 solvency assessment. The HICM provides a consistent view of capital Economic Regulatory requirements for all segments of the business and at Group level. The Group’s estimate for the year-end ## 2.5 2022 BSCR solvency coverage ratio is 197% (2021: 202%). The Group continues to operate with a robust solvency position and expects to maintain an appropriate margin of solvency going forward. In addition, ## 2.0 each of the respective insurance carriers holds appropriate capital positions on a local regulatory basis. ## 1.5 ## 1.0 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 2022. Hiscox uses the internally developed Hiscox integrated capital model to assess its own capital needs on both a trading (economic) and purely regulatory basis. All capital ## 0.0 requirements have been normalised with respect to variations in the allowable capital in each assessment for comparison to a consistent available capital gure. The available capital gure comprises net tangible assets and subordinated debt. 43Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | ## Risk management The Group’s core business is to take The risk management framework is risk where it is adequately rewarded underpinned by a system of internal to maximise returns to shareholders. control, which provides a proportionate The Group’s success is dependent on and consistent system for designing, how well we understand and manage implementing, operating and assessing our exposures to key risks. how we manage our key risks. This framework is regularly reviewed and | Risk strategy | enhanced to reect evolving practice on | | --- | --- | | Our robust risk strategy positions us | risk management and governance. During | | to capture the upside of the risks we | 2022, we continued to further embed and | | pursue and effectively manage the | strengthen our system of internal control. | downside of the risks to which we are exposed. It is based on three Risk appetite key principles: The risk appetite sets out the nature and s we maintain underwriting discipline; degree of risk the Group is prepared to s we seek balance and diversity take to meet its strategic objectives and through the underwriting cycle; business plan. It forms the basis of our s we are transparent in our approach exposure management and is monitored to risk, which allows us to throughout the year. continually improve awareness ### Our risk management and hone our response. Our risk appetite is set out in risk appetite ### strategies and processes statements, which outline the level of risk Risk management framework we are willing to assume, both by type ### continue to evolve with The Group takes an enterprise-wide and at an aggregate level, and dene our ### our business, and we approach to managing risk. The risk risk tolerances: the thresholds which ### work hard to ensure we management framework provides would represent a ‘red alert’ for senior ### have a strong risk culture a controlled system for identifying, management and the Board. measuring, managing, monitoring ### throughout the organisation, and reporting risk across the Group. Risk appetites, which are set for the Group ### supported by regular and It supports innovative and disciplined as a whole and for each of our insurance ### robust internal training and underwriting across many different carriers, are reviewed annually, enabling ### awareness campaigns.” classes of insurance by guiding our us to respond to internal and external appetite and tolerance for risk. factors such as the growth or shrinkage Hanna Kam of an area of the business, or changes in Group Chief Risk Ofcer Exposures are monitored and evaluated the underwriting cycle that may have an both within the business units and at impact on capacity and rates. Group level to assess the overall level | of risk being taken and the mitigation | Risk management across the business | | --- | --- | | approaches being used. We consider | The Group coordinates risk management | | how different exposures and risk | roles and responsibilities across three | | types interact, and whether these may | lines of defence. These are set out | | result in correlations, concentrations | in the model on page 45. Risk is also | | or dependencies. The objective is to | overseen and managed by formal and | | optimise risk-return decision-making | informal committees and working groups | | while managing total exposure, and in | across the rst and second lines of | | doing so remain within the parameters | defence. These focus on specic risks | | set by the Board. | such as catastrophe, cyber, casualty, | 44 Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | Risk management | | | information | summary | Three lines of defence model Owns risk and controls Assesses, challenges and advises Provides independent assurance Responsible for ownership and on risk objectively of risk control management of risks on a day-to-day Provides independent oversight, Provides independent assurance to the basis. Consists of everyone at every challenge and support to the rst line Board that risk control is being managed level in the organisation, as all have of defence. Consists of the Group risk in line with approved policies, appetite, responsibility for risk management at team and the compliance team. frameworks and processes, and helps an operational level. verify that the system of internal control is effective. Consists of the internal audit function. from independent risk experts. At each of its meetings during the year, the Risk Committee reviews and discusses a risk dashboard and a critical risk tracker Risk management framework Hiscox Own Risk and Solvency which monitors the most signicant Understanding and managing the Assessment (ORSA) framework exposures to the business, including signicant exposures we face. The Group’s ORSA process is emerging risks and risks that have an evolution of its long-standing emerged but continue to evolve. The risk management and capital Risk Committee also engages in focused assessment processes. reviews on our key risks and monitors emerging risks throughout the year. In 2022, additional risks considered include Risk Risk associated risks with Cloud provider denition owner ORSA Business concentration, reversal of globalisation documentation planning trends impacting the complexity and cost of regulatory compliance, and potential Risk A p r o c Risk S e R s disruptions arising from infectious reporting s appetite O Risk ORSA diseases outbreaks. An overview of governance governance the processes for identifying emerging Assurance Risk risks through the Grey Swan Group is assessment described on page 65. Stress tests and Risk Risk reverse stress tests (scenarios such as monitoring measurement those shown on pages 46 to 47, which Capital and Risk could potentially give rise to business solvency mitigation assessment failure as a result of either a lack of viability or capital depletion) are also performed and reported on to the | sustainability, reserving, investments | multi-disciplinary teams from across the | Risk Committee. | | | --- | --- | --- | --- | | and credit, as well as emerging risks. | business, such as capital, nance and | | | | The Group Risk and Capital Committee | business planning. | The Risk Committee also provided | | | and the Group Underwriting Review | | input into a number of important | | | Committee are sub-committees of | The role of the Board in risk management | risk management developments | | | the Risk Committee and make wider | and key developments during 2022 | during 2022: | | | decisions on risk. More information | The Board is at the heart of risk | s a risk management maturity | | | on these Committees can be found | governance and is responsible for setting | | framework was introduced | | on pages 63 to 65. | the Group’s risk strategy and appetite, | | during the year to help set the | | | and for overseeing risk management | | organisation’s maturity goals | | The Own Risk and Solvency | (including the risk management | | against six key dimensions of risk | | Assessment (ORSA) process | framework). The Risk Committee of the | | management, as well as monitor | | The Group’s ORSA process involves a | Board advises on how best to manage | | ongoing progress made against | | self-assessment of the risk mitigation | the Group’s risk prole by reviewing | | these goals. The maturity model | | and capital resources needed to achieve | the effectiveness of risk management | | has been introduced at both | | the strategic objectives of the Group | activities and monitoring the Group’s risk | | Group and business unit level; | | and relevant insurance carriers on a | exposures, to inform Board decisions. | s maintaining a strong risk culture | | | current and forward-looking basis, | | | across the organisation is | | while remaining solvent, given their risk | The Risk Committee relies on frequent | | recognised as a key component | | proles. The annual process includes | updates from within the business and | | of effective risk management at | 45Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | Risk management | | | information | summary | Hiscox. During the year, the Group risk team developed processes to more systematically assess risk culture across the Group considering aspects such as tone from the top, risk transparency, the organisation’s use of lessons learned and its ability to identify and respond to uncertainty. As part of this work, an 18-month plan has also been developed to further enhance the organisation’s risk culture which will continue to be monitored through the processes developed during the year. These processes now include a risk culture survey for all staff to be completed as part of annual risk management training which has been rolled out; Casualty extreme loss scenarios s there has been a strong focus As our casualty businesses continue to grow, we develop extreme loss scenarios during the year on performing to better understand and manage the associated risks. Losses in the region targeted risk reviews at both Group of $75-$825 million could be suffered in the following extreme scenarios: and legal entity level (including those driven by regulatory developments). Event Estimated loss Particular emphasis has been Multi-year loss 5% deterioration on three years’ $235m placed on performing reviews to ratio deterioration casualty premiums assess the risks for the organisation associated with ination given the Economic An event more extreme than witnessed $375m current macroeconomic conditions collapse since World War II* being observed. Casualty reserve Estimated 1:200 view of a casualty $825m deterioration reserve deterioration on current The Risk Committee also supports the reserves of c.$2bn Board in its review of the effectiveness of the Group’s risk management and Pandemic Global pandemic considering broader $100m internal control systems as part of its and alternative impacts than Covid-19 annual declaration of compliance with Cyber A 1:200 cyber event, such as a $350m the Bermuda Monetary Authority’s major Cloud outage or mass Group Supervision Rules and via the ransomware attack. Includes annual Group-wide risk and control ‘silent cyber’ exposures** self-assessment and associated | second-line review. | Marine | Range of events covering collision | up to $75m | | --- | --- | --- | --- | | | scenarios | and sinking of vessels and any | | | The Board, through the Risk Committee, | | resultant pollution | | has conducted a robust assessment of Offshore Total loss to a major offshore up to $100m the emerging and key risks facing the platform platform complex Company, including those that would threaten its business model, future Terrorism Aircraft strike terror attack in a major city up to $350m performance, solvency or liquidity, and Property 1-in-200 year catastrophe event from $500m is satised that no material changes to † catastrophe $280bn US windstorm the key risks are required. *Losses spread over multiple years. **‘Silent cyber’ refers to losses incurred from non-cyber product lines from a cyber event. The role of the Group risk team † As a point of comparison. The Group risk team is responsible for designing and overseeing the | implementation and continual | monitoring how the business goes about | to change programmes across the | | --- | --- | --- | | improvement of the risk management | meeting regulatory expectations around | Group, as well as ensuring appropriate | | framework. The team is led by the | enterprise risk management. | support and challenge is provided to | | Group Chief Risk Ofcer who reports | | the rst line of defence in assessing, | | to the Group Chief Executive Ofcer | 2022 has seen a continued focus on | understanding and responding to risks | | and the Risk Committee of the Board. | improving the efciency of the risk | associated with the current geopolitical | | | management framework, mainly through | and economic environment. | | The team works with the rst-line business | the streamlining and automation of | | | units to understand how they manage risks | repeatable cycles. This creates further | | | and whether they need to make changes | capacity for risk reviews and deep-dives | | | in their approach. It is also responsible for | and for more support to be available | | 46 Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | Risk management | | | information | summary | 8 More information on our approach to Read more about our key risks. risk management can be found at hiscoxgroup.com/about-hiscox/ risk-management. Property extreme loss scenarios Boxplot and whisker diagram of modelled Hiscox Ltd net loss ($m) January 2023. Stress tests and reverse stress tests are regularly performed and reported on to the Risk Committee of the Board. These include climate-related scenarios such as those shown in the chart below. Upper 95%/lower 5% Modelled mean loss Hiscox Ltd loss ($m) 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 ## 800 800 ## 700 700 ## 600 0 600 ## 500 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 500 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 and peril 5–10 year 10–25 year25–50 year50–100 year 100–250 year ## 400 400 industry loss $bn 02 04 07 02 36 05 07 14 08 70 12 13 22 24 127 21 19 30 48 193 34 28 39 86 277 ## 300 300 This chart shows a modelled range of net loss the Group might expect from any one catastrophe event. The white on the red bars depicts the modelled mean loss. ## 200 200 The return period is the frequency at which an industry insured loss of a certain amount or greater is likely to occur. For example, an event with a return period of 20 years would be expected to occur on average ve times in 100 years. ## 100 10 JP EQ – Japanese earthquake, JP WS – Japanese windstorm, EU WS – European windstorm, US EQ – United States earthquake, US WS – United States windstorm. ## 0 0 Industry period 47Hiscox Ltd Report and Accounts 2022 Mean | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | ## Stakeholder engagement | Shareholders | Employees | Brokers | | --- | --- | --- | | Our shareholders value our clear | We want to build teams that are as | The risks we write through brokers | | strategy, strong underwriting discipline | diverse as our customers and create | account for around 85% of our business, | | and sound capital management, and | a vibrant work environment where all | so we look to build strong and lasting | | we maintain ongoing engagement | employees can thrive. | relationships with those that share | | with them. | | our values. | | Regular investor dialogue | Annual employee engagement survey | Annual Hiscox broker events | | --- | --- | --- | | We maintain regular dialogue with capital | Our annual employee engagement | We hold an annual preferred broker | | markets stakeholders, predominantly via | survey gives all our employees the | summit for our UK brokers, to share | | our Group Chief Executive Ofcer, Group | opportunity to provide honest feedback | insight and expertise, and a London | | Chief Financial Ofcer and Director | on how they feel about Hiscox, with the | Market broker academy to educate | | of Investor Relations, who meet with | results discussed at all levels including | and inform. These events are | | existing shareholders, potential investors | Board level and informing future plans. | supported and often attended | | and research analysts regularly to | | by our Executive Directors. | | discuss our strategy, trading conditions, | Board-level Employee Liaison | | | business performance and other factors | Non Executive Director, Anne | Broker satisfaction survey | | affecting our operations. | MacDonald, also serves as the Group’s | Each year we measure broker | | | Employee Liaison, working with the | satisfaction with our products and | | We run several comprehensive investor | Group’s employee engagement network | services, including through qualitative | | roadshows a year in the UK and USA | to ensure that workforce views are | broker interviews, with the results | | and participate in a range of investor | considered in Board decision-making. | shared and discussed at Board level | | conferences. During 2022, the | | and informing future plans. | | Company conducted around 370 | Employee networks | | | meetings and met with around 150 | Many of our employees are actively | Attending key industry events | | investors, representing approximately | engaged in at least one of our 18 | We participate in key industry events in | | 76% of our issued share capital. | employee network chapters, including | every part of our broker-facing business, | | | WeMind, Pan-African, parents and | including at Executive Director level. | | Financial reporting | carers, and Pride. These networks | This includes: BIBA, a UK insurance | | We report to the market on Company | are supported by our Directors, who | and broker conference; the CIAB, a US | | performance four times per year, | contribute to panel debates and other | marketplace meeting for commercial | | providing shareholders with an overview | employee events. | property and casualty brokers | | of recent business performance and | | and insurers; and in our big-ticket | | trading conditions. These are available | Communication updates | businesses, Monte Carlo, Baden Baden, | | on our corporate website and as an | Employees have access to | and RIMS. | | email alert for subscribers. | Company-wide ‘connected’ events, | | | | annual ‘launch’ events and ‘box’ | Thought leadership | | Annual Report and Accounts | meetings, many of which are led or | We produce thought leadership that | | Our Annual Report and Accounts gives | attended by our Directors to share | enhances our broker relationships and | | shareholders a more detailed view of the | news, align on strategy and objectives | our position as experts in our chosen | | business and includes some additional | and celebrate successes. | areas. In 2022, this included cyber | | corporate governance disclosures | | security trends and mitigation strategies, | | beyond our statutory requirements. | Partners’ meetings | the insurance implications of self-driving | | | Hiscox Partner is an honorary title given | cars, the importance of passion in | | Annual General Meeting (AGM) | to employees who make signicant | building a small business and the | | Our AGM provides another regular | contributions to the development and | latest online art buying trends. | | investor touchpoint. At the 2022 AGM, | protability of the Group. Up to 5% of | | | all resolutions were passed with a | the total workforce are Hiscox Partners, | | | signicant majority. | and have the opportunity to inuence the | | direction of our business through regular formal and informal Partners’ meetings, which Directors also attend. 48 Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | Stakeholder | | | information | summary | engagement | Customers | Regulators | Suppliers | | --- | --- | --- | | We have over 1.5 million retail customers | We are a global business with a | Our suppliers are an important extension | | worldwide and providing each of them | responsibility to engage with regulators | of our in-house expertise, which is | | with products they can rely on is what | in all jurisdictions where we operate. | why we aim to work with like-minded | | we are here for. | The Group is regulated in Bermuda and | businesses that share our purpose. | has regulated subsidiaries worldwide. | Customer satisfaction | Regular dialogue | Robust procurement processes | | --- | --- | --- | | We talk to thousands of customers each | Our Chief Compliance Ofcer and | We want to work with businesses | | year, through both quantitative surveys | compliance teams worldwide lead | that align with our values and support | | and qualitative research – including | our relationships with our regulators | our goals, and we reect this in our | | feedback after they have bought a | and maintain regular dialogue with | robust procurement processes. These | | product or made a claim – which are | them, with involvement from senior | processes ensure we assess suppliers | | reviewed by our leadership teams and | management and the Board when | against a wide range of criteria, | | help to continually improve our offering. | required. Regulatory dialogue includes | encompassing nancial stability, culture | | | the annual supervisory college, hosted | and ethics, as well as innovation and | | Consumer awareness | by the Bermuda Monetary Authority as | development. For larger contracts, | | We also measure the health of our | our Group supervisor, which gives an | these processes also include a degree | | brand through regular brand tracking | important annual opportunity for us to | of Executive Director involvement | | surveys which assess consumer brand | present a consistent message to all of our | or oversight. | | awareness and perception. These are | regulators on issues of common interest, | | | shared with senior management and | and in 2022 was attended by members | Supplier code of conduct | | inform marketing and sales activities. | of the Group’s senior management team, | We expect our suppliers to adhere to | | | including all of the Executive Directors. | high standards in areas such as risk | | Informing our marketing | | management and compliance, in line | | and communications | Regulatory change | with our regulatory requirements, | | Marketing and communications activity | We contribute to the regulatory change | and when it comes to environmental, | | across our markets is informed by the | process, both directly and through active | social and governance issues, such as | | qualitative and quantitative research we | membership of trade associations, | diversity, equity and inclusion (DEI) and | | carry out with both existing and potential | such as the Association of Bermuda | environmental practices. | | customers. For example, a current focus | Insurers and Reinsurers (ABIR) and the | | | in the UK is reviewing our marketing and | Association of British Insurers (ABI). | Active dialogue | | communications in line with the FCA’s | Our Executive Directors are important | We maintain active dialogue with our | | new Consumer Duty regulations, where | contributors to this work. | suppliers to ensure our expectations, | | we will also take into account customer | | ambitions and ways of working remain | | insights and feedback. | Scenario analysis and stress testing | aligned. This dialogue is often driven | | | We maintain a regular cycle of stress | by the relationship managers for each | | Customer-focused products and tools | testing and scenario analysis to ensure | contract and supported or facilitated | | We use a combination of customer | we manage risk well and evolve at | by our Group procurement experts, | | insight and claims experience to develop | the same pace as the risks we cover. | and for larger contracts will include | | not only our risk transfer products, | In 2022, this included participation in | senior management or Executive | | but also risk mitigation tools. These | the Prudential Regulation Authority’s | Director involvement. | | include our cyber exposure calculator | market-wide General Insurance Stress | | | and the Hiscox CyberClear Academy, | Test (GIST) in the UK. | | a NCSC-approved cyber training programme for customers. Regulatory reporting The Group and its subsidiaries met all material regulatory reporting obligations for 2022. 49Hiscox Ltd Report and Accounts 2022 ## Q& ## A: with Stéphane Flaquet Group Chief Operations and Technology Ofcer ## Tech savvy ## The future of technology at Hiscox will see ## a growing focus on business outcomes, ## a convergence of approaches between ## retail and big-ticket and a change of ## mindset around the management of data. > 50 Hiscox Ltd Report and Accounts 2022 51Hiscox Ltd Report and Accounts 2022 After building a career in operations and change leadership, Stéphane Flaquet joined Hiscox in 2010 as Chief Operating Ofcer for Europe, before moving to London in 2012 to head up the Group technology function. After time as Managing Director for Hiscox Europe, Chief Transformation Ofcer for the Group and Interim CEO of Hiscox UK, he took on the newly created role of Group Chief Operations and Technology Ofcer during 2022. leaders is not just nding the next cool piece of kit and spending a lot of Hiscox’s money on it. It’s about using tech in a way ## Q& that makes our business better – that is the really cool thing. That’s where the proximity between the technology team ## A: and the rest of the organisation is so key. with Stéphane Flaquet IT is a means to an end. It’s not a goal in Group Chief Operations and itself. So focusing on tangible business Technology Ofcer outcomes is critical. That has been front of mind as we successfully re-platformed our retail businesses in the UK, the USA and now Europe. Q: Is there a difference in your approach between retail and big-ticket business? A: Historically, technology was more Q: How has the role and prole of Q: How do you ensure you’re delivering important in retail than in big-ticket – technology at Hiscox changed in effective technology change? high-volume, low-margin business is recent years? A: In IT, delivery times can be quite where tech traditionally had a key role to A: It’s been a massive change. Key to long, so you need to plan ahead. But as play. But what we’ve seen over the past this is that the technology function has we know, the pace of innovation in tech few years is a convergence in the use of emerged as a core function across all is increasing and the pace of adoption technology between retail and big-ticket. business areas. Technology can be a is increasing even faster, so you also For example, one of the great successes source of competitive advantage, but need to be able to iterate super quickly. is how the London Market is now for that to happen you need to have Getting the balance between the two distributing some of its products directly close proximity between the technology is really tricky. If you’re too short term, to the local producers using the kind of team and the rest of the business. you’re always on the back foot, trying to application programming interface (API) If you’ve got the IT leader in the room respond to business demands. If you’re and pricing capability you would expect for most of the conversation, they’ll be too long term, by the time you deliver in retail. Historically, in big-ticket it’s all able to do a better job of enabling the something, you’re delivering what the about technical excellence, pricing, business. We now have technology business needed three years ago. We analytics, modelling, and you now see leaders sitting within all our business unit need to be having different conversations a lot more of that going into the retail leadership teams, which is a big change. and using different delivery mechanisms. space. I think we’re seeing a real meeting You can see it in the way our business There is business transformation that in the middle where these previously very unit CEOs now talk about IT in their requires multi-year planning, but there is different business types are using the communications, in their operating other change delivery that can be done same core capabilities. Having a strong plans. It’s no longer acceptable for a in two-week iterations. And this is not enterprise architecture function that is leader to say: “I don’t understand tech”. a tech conversation, this is an overall able to connect the dots, drive re-use A decent understanding of technology business agility ambition. and economies of scale is even more is as important as people leadership, critical in that context of convergence. business economics, nancial What those two levels of delivery have management, and so on. Our leaders in common is the need to always have in Q: What is your vision for how the are willing to learn because they realise mind what the business outcome is that use of data should change in the the potential of technology to transform you want to get to. In IT, it’s so easy to coming years? their business in so many ways. get caught in the buzz. But the role of IT A: Insurance has always been about 52 Hiscox Ltd Report and Accounts 2022 IT is a means to an end. It’s not a goal in itself, so focusing on tangible business outcome is critical. That has been front of mind as we successfully re-platformed our retail businesses in the UK, the USA and now Europe.” data and will always be about data, Q: Beyond your technology brief, but technology transformation can what are your other priorities? dramatically impact the way we use it A: One major priority is to strengthen and the value we get from it. We currently our operational capabilities in retail. What we’ve seen over the past few have lots of pockets of good practice Retail is the fastest growing part of our years is a convergence in the use all across the organisation, so now organisation, and to support that growth of technology between retail and we’re focusing on connecting the dots we’re focused on making sure we have big-ticket. For example, one of the between them. So rather than looking all the right capabilities in place, dialled great successes is how the London at underwriting data, or claims data, or up to the appropriate level: from the Market is now distributing some marketing data, or brand awareness voice of the customer, to management of its products directly to the local data, we want a 360° view of all those information, strategy leadership, producers using the kind of API and different components. That is only going automation, process management, pricing capability you would expect to be achieved if we start treating data as technology enablement, all of that. We in retail.” a product, rather than as a by-product of also currently have very distinct retail any particular activity. We need people to businesses, and they’re all operating own that product, take responsibility for slightly differently, so an element of its integrity and accuracy and then make operating model convergence is needed it available to other data owners. That’s a and I think technology can play a really completely different mindset and is one exciting role in that. of the capabilities that we are building. Q: Outside of work, what gives | Q: How do you see technology in the | you energy? | | --- | --- | | workplace evolving? | A: Now that my kids have mostly left the | | A: It’s obvious to say, but our | nest, the best thing that happened to | | relationship to technology, both personal | me over the last three years is that I got | | and professional, has fundamentally | a dog for the rst time, a chocolate | | changed in the last few years. I think | Labrador called Mosey. He has changed | | one of the few good things about | my life completely. I can’t believe that I’ve | | the pandemic is how the adoption of | lived for almost 47 years of my life without | | technology has accelerated. During | a dog. What a waste! | 2022 we moved into our new ofce here in London, and now I enter the building using my phone, book a desk using an app, order lunch using an app. We don’t have phones on our desk, I hardly have papers anymore, I just carry my laptop and my iPhone and this is my life and I can do everything that I want with this. But I still think there is more we can do. We need to recreate the same simplicity and convenience for our people that we all have in our personal life, and we need to offer our customers the same seamless experience. This is a never-ending journey because our expectations as customers are constantly rising, and rightfully so. 53Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | ## Environmental, social and governance (ESG) | Our approach to environmental, | We will continue to build on this progress | | | --- | --- | --- | | social and governance standards | during 2023, through a combination | | | (ESG) is shaped by a clearly stated | of one-off programmes of work and | | | ambition: to be here for the long | ongoing engagement on key issues. | | | term, for our customers, colleagues | This will include: | | | and communities, operating in a | s publishing a low-carbon | | | sustainable way for the future. | | transition plan in line with UK | regulatory requirements; We take our role in the world seriously s further dening the Group’s ESG and want to play a responsible part in risks and opportunities through society, but we are pragmatic about ESG materiality mapping; what that looks like. The language of s continued industry collaboration ESG is rapidly evolving, but the issues on issues including the measuring it encompasses are not new, and in of underwritten emissions. many cases our responses to them are already embedded in our business. For example, having a deep understanding of climate change through catastrophe modelling and research is a fundamental part of our business and an area ### The challenges of ESG are where we want to be market leading. ### not easy to solve, which In other areas, progress comes through regulation or public interest, but we also ### is why I like the pragmatic see future opportunities to innovate and ### approach that Hiscox is serve our customers. ### taking to address them. ### That means operating To achieve our ambition, we focus on making positive and persistent ### responsibly, but also improvements to our approach across ### working with others to ESG. For example, during 2022, we ### drive meaningful progress.” established an ESG data provider within our London Market business, which over Jon Dye time will support underwriting decisions in Chief Executive Ofcer, Hiscox UK big-ticket lines and help us factor ESG into and Sustainability Steering our future exposures. We also saw a 28% Committee member decrease in our operational greenhouse gas (GHG) emissions in 2022 against our 2020 baseline year, and realised the fth year of incremental improvement in closing our UK gender pay gap, which is now at 16.0% on a mean basis. Our progress over the past year was reected in our MSCI ESG rating, which was upgraded from A to AA, and in our CDP score, which improved from a B- in 2021 to a B in 2022. 54 Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | 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 M a n i s k a g i e r n g t i v o u A c t e n r o e n v i r o w e m n m a g e n a n n n t a t i o f o o a m t i g t p l i r i n m t n d a W g i n g p r i n c i p o n u i d l e s o r t i s G u k r e r i n o r a u n s g p s d u e o p w r l p p r c a i t a s r l i h i t e l e d n r t , s c e C d A r n s s i e s U a w n n a h d a l e p y l e t r p r m i s n n t o u g a C o o n c u d u l s a l i r r n i n a e d a s I i s c g k d n n e u c u r c o c e v i r l s m e l m l r e t u r E t i w o d o m a s n d e n r t i p n e v m n e B c a i i n t , a i r a t c n o e t i s s , e g n g l o h a n r u r t s n s e g o i r m r i b r p e i m n t l e t s a o w e o n u v n k n d r e R o e o t a a d n n c c a d a g G n t n l a n d a i p i t l t s i p l m K i e o m r U a C u C p n t t r r d e c h o a u g v s r i t e e i t s n r r s r v g e e i e v s c p t e a o l i r i i s o r e d n d p t n c h u o a a c r e S o c i a l t t p s p G t A l o c b a a p l i m t h e n B m a e k e e s a i , l m n o c o t a l l y d t r i n g e x e c u t e a y c a i t p l u n r n s e u u i v n o m e g g a n m w g i o o e y c d l a r k e a P h f o n t r d n c i e B e i u r n g a n i s u r e r o n c u s o n t o m e n r e l y r s c a 55Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | Environmental, social | | | information | summary | and governance (ESG) | Environmental | | | composition against our ESG | | 2050. The aim is that more than | | --- | --- | --- | --- | --- | --- | | We carefully manage our environmental | | | focus areas, capturing programs | | 25% of our corporate bond portfolio | | impact and work with our customers, | | | declined for ESG reasons in regular | | by invested value will have net-zero | | suppliers and business partners to | | | internal reporting; | | or Paris-aligned targets by 2025, | | respond to the changing climate. | | s in investments, we have shared the | | | and more than 50% by 2030; | | This includes nding ways to limit our | | | policy with our fund managers, to | s engage with our suppliers, brokers | | | own consumption of materials such | | | ensure it is considered in relation | | and reinsurers on our net-zero | | as energy and water and reducing | | | to pooled funds, and we have | | targets and on their plans to adopt | | the amount of waste we generate. It | | | eliminated our investment exposure | | Paris-aligned climate targets; | | also means investing in areas such as | | | within all directly-held bonds that | s monitor emerging standards | | | research, catastrophe modelling and | | | fall outside of appetite. In addition, | | around underwritten emissions | | new technologies that improve our | | | we have now fully embedded ESG | | and collaborate across our industry | | underwriting capabilities and ensure we | | | into our investment processes: | | on their development, aligning | | are well placed to help our customers | | | net-zero wording is now in all | | with best practice in this area as | | when it comes to managing the risks | | | core bond investment manager | | it emerges. | | they face. | | | mandates; we have enhanced the | | | | | | | ESG credentials of our emerging | In 2022, we took some important rst | | | ESG exclusions policy | | | market bond portfolio; and | steps in response to these targets: | | | Our ESG exclusions policy ofcially came | | | an investments-focused ESG | s we completed a half-year footprint | | | into force at the start of 2022 and is an | | | dashboard is now a regular feature | | in order to provide a mid-point | | important pillar of our environmental | | | of Investment Committee reporting. | | for assessing emissions and | | ambitions. This policy sets out our | | | Our sustainable assets including | | further enhance our data | | ambition to reduce steadily and eliminate | | | green/ESG bonds are now over | | collection processes; | | by 2030 our insurance, reinsurance and | | | $300 million, with over 5% of | s we conducted a deep-dive on | | | investment exposure to coal-red power | | | our bond portfolio in green or | | renewable electricity usage across | | plants and coal mines; Arctic energy | | | ESG-labelled bonds. | | the Group, and identied key sites | | exploration, beginning in the ANWR | | | | | to focus on for continued adoption | | region; oil sands; and controversial | | GHG reduction targets | | | of renewable electricity in support | | weapons such as landmines. | | Central to our efforts to manage our | | | of our Scope 1 and 2 target; | | | | environmental impact is an ambitious | | s we made good progress towards | | | Since then we’ve made solid progress | | set of targets for the reduction of GHG | | | the rst of our interim targets | | across underwriting, reinsurance | | emissions. We announced our new | | | for transitioning our investment | | and investments: | | Group-wide GHG targets with our 2021 | | | portfolio, with approximately 20% | | s in big-ticket underwriting, we now | | full-year results, and during 2022 we have | | | of our corporate bond portfolio | | | monitor all risks according to their | focused on embedding them. These | | | having net-zero/Paris-aligned | | | ESG prole and continue to decline | targets, which were developed using SBTi | | | targets as at year-end. | | | and non-renew risks in line with | methodologies and designed to align | | | | | | our exclusions policy. Through | with a 1.5°C net-zero world by 2050, are: | | We will build on this further with the | | | | this same tracking, we are able to | s reduce our Scope 1 and 2 | | development of a low-carbon transition | | | | monitor the positive risks we are | | emissions by 50% by 2030, | plan for the Group, in line with UK | | | | supporting such as wind and solar | | against a 2020 adjusted baseline*; | regulatory requirements. | | † energy, and electric vehicles; s reduce our operational Scope 3 * Baseline year adjusted in light of Covid-19-related s in reinsurance, we have exited emissions by 25% per full-time lockdown measures,to reect a more normal year from all business where 30% or equivalent (FTE) by 2030, against a in terms of business travel etc. † Operational Scope 3 emissions predominantly more of subject premium derived 2020-adjusted baseline*; consist of purchased goods and services and from restricted areas, and we s transition our investment portfolios capital goods, and business travel (air, rail and continue to monitor our portfolio to net-zero GHG emissions by car travel). 56 Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | Environmental, social | | | information | summary | and governance (ESG) Water and waste GHG emissions* | | | | | 2022 | | 2021 | | 2020 | | 2022 vs. 2020 | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Year-on-year | | Scope | (tCO | 2 e) | (tCO | 2 e) | (tCO | 2 e) | | baseline | | 2022 2021 | | change | | | | | | | | | | Scope 1 786 678 615 28% Water usage 10 20 -50% Scope 2 (market-based) 927 866 1,111 -17% Waste generated 49 34 44% Total Scope 1 and 2 1,713 1,544 1,726 -0.8% Scope 3 (operational) 19,298 17,116 27,4 61 -30% Scope 3 (operational) per FTE 5.83 5.80 8.91 -35% Total operational footprint 21,011 18,660 29,187 -28% Scope 3 (non-operational) 9,862 8,458 7,0 4 6 40% Investments 127,4 97 125,15 6 135,275 -6% Our Scope 1-3 emissions excluding investments are independently veried to a reasonable assurance level, with investment emissions veried to a limited assurance level. A copy of the verication statement can be found at hiscoxgroup.com/responsibility/environment. Environmentally-focused commitments Total GHG emissions inventory * GHG emissions are calculated according to the Greenhouse Gas Protocol: A Corporate We continue to focus on managing and Accounting and Reporting Standard (revised minimising our carbon footprint as a edition). Hiscox uses market-based Scope 2 Group. While we saw a 28% decrease in emissions for reporting in line with its new GHG reduction target. Operational Scope 3 emissions our operational GHG emissions in 2022 cover operational suppliers (ofce and other against our 2020 baseline year, our total related services), capital purchases, fuel and ClimateWise operational footprint increased by 13% energy related activities, waste generated in operations, business travel, employee commuting in 2022 when compared to 2021. and remote working. Non-operational emissions are those that do not directly contribute to the While some of this increase relates to emissions associated with daily business activity, including non-operational purchased goods and emissions arising from one-off capital services and transportation and distribution. goods spend – such as those generated Paris Agreement 2015 as a result of our London ofce move An assessment across all categories of Scope 3 emissions has taken place and the material – there are other areas where we have categories are disclosed as part of our full GHG seen an increase in emissions due inventory (above). Note some emissions totals to continued improvements in data may not tally due to rounding. accuracy as we continue to enhance The investment emissions are calculated using our data collection processes. the Enterprise Value Including Cash (EVIC-based) Principles for Responsible Investment method of attributing nanced emissions to investors, and calculations use MSCI’s carbon (PRI) We also saw an increase in upstream † data as the ultimate source. Our 2020 operational transport and distribution emissions, as emissions baseline for business travel has been we have this year started to account for restated to project pre-Covid travel patterns. transport emissions related to purchased A copy of our Streamlined Energy and Carbon goods and services and capital goods as Reporting (SECR) GHG emissions table can be Principles for Sustainable Insurance (PSI) part of our Scope 3 footprint. found on page 63. † Although Hiscox’s information providers, including Business travel emissions this year without limitation, MSCI ESG Research LLC and its also reect the expected rebound afliates (the ‘ESG Parties’), obtain information (the ‘information’) from sources they consider in travel-related emissions that we reliable, none of the ESG Parties warrants or reported last year, as work patterns guarantees the originality, accuracy and/or Sustainable Markets Initiative continue to normalise. completeness, of any data herein and expressly disclaim all express or implied warranties, including those of merchantability and tness for a particular purpose. The information may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used as a basis for, or a component of, any nancial instruments or products or indices. Task Force on Climate-related Financial Further, none of the information can in and of itself be used to determine which securities to buy or Disclosures (TCFD) sell or when to buy or sell them. None of the ESG parties shall have any liability for any errors or omissions in connection with any data herein, or any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost prots) even if notied of the possibility of such damages. 57Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | Environmental, social | | | information | summary | and governance (ESG) Charitable giving and volunteering Hiscox Foundation Hiscox Gives | Social | The work we do with customers is | | in our 2022 employee engagement results | | --- | --- | --- | --- | | In everything we do, we strive to be | recognised in our strong customer | | – our best in ten years (see page 3). | | a good employer, a trusted insurer | satisfaction scores for the year (see | | | | and a good corporate citizen. Our | page5). | | We also continue to progress our diversity, | | social responsibilities help to inform | | | equity and inclusion (DEI) efforts, as we | | our customer and claims philosophies, | Supporting our communities | | strive to build teams that are as diverse | | our strategy for charitable giving and our | Supporting the communities in which | | as the customers we serve. We currently | | employment practices. | we work has been part of our DNA for | | have 18 employee network chapters, | | | decades, and our charitable foundation, | | including a new ‘global abilities’ network | | Being a customer-centric business | the Hiscox Foundation, dates back to | | focused on disabilities and neurodiversity, | | Being an insurer our customers can rely | 1987. We focus our charitable giving | | which we introduced during 2022. More | | on is part of our reason for being, and | around three strategic pillars: | | information on our approach to DEI can | | we continue to focus on providing | s social mobility and entrepreneurship; | | be found on page 95 to 97. | | easy-to-understand products that suit | s protecting and preserving | | | | specic customer requirements. For | | the environment; | We have been an accredited Living Wage | | example, in Hiscox London Market | s causes our people are | | employer in the UK since 2019, but in 2022 | | we enhanced our malicious attack | | passionate about. | we recognised the additional challenges | | offering with resilience training during | | | of high ination levels and an increased | | the year; in Hiscox ILS we launched | During 2022, we donated over | | cost of living on our people. As a result, | | a special opportunities portfolio in | $1.8million to good causes and | | we made one-off cost of living lump sum | | response to market dynamics; and | our people spent over 1,400 hours | | payments of £1,500/$1,500/€1,500 to the | | in the UK we are adapting to the FCA’s | volunteering. This included targeted | | lowest-earning portion of our workforce | | new customer-focused Consumer | donations that recognise specic events | | – benetting 38% of our people. | | Duty regulations. | such as the Russia/Ukraine conict and | | | | | the oods in Pakistan. During the year, | | Governance | | Our approach is to consider not just the | in recognition of the rising cost of living | | As a global insurer, good governance | | transfer of risk through insurance, but | and the increasing costs that charities | | practices are essential to our | | also how we can help our customers | are facing, we increased our donations | | day-to-day business of serving | | mitigate the risks they face. In cyber, | to our UK multi-year partners in line with | | customers and paying claims. | | we do this through the training and | ination for the 2022/23 nancial year. | | That means having appropriate internal | | education we offer as part of the Hiscox | | | controls, policies and procedures, and | | Risk Academy, and in home insurance | Being a great place to work | | structures and oversight, but it also means | | we do it through our partnership with | Building an engaged and inclusive | | ensuring all employees are accountable | | LeakBot, an early leak detection system | workforce was a strategic priority for us in | | for their actions and empowered to raise | | that we’ve provided to over 8,000 | 2022. We made great strides in reviewing | | their hand if something goes wrong. As a | | Hiscox UK insured homes to date. | our employee proposition and introduced | | Bermuda-domiciled, UK-listed business, | | You can read more about our approach | new rewards for colleagues including our | | we comply with the Bermuda Companies | | to risk transfer and risk mitigation on | share ownership scheme, HSX:26. We also | | Act, the UK listing rules and local country | | pages 18 to 19. | introduced ‘Hiscox days’ – an additional | | laws in each of the locations where | | | two days for employees to do whatever | | we operate. | | During the year we also reected on the | matters most to them. A new sabbatical | | | | impact on our customers of the rising | policy came into force, which provides | | More information on our governance | | cost of living, leading to enhanced | four weeks’ paid leave for every ve years | | practices – including as they relate to | | vulnerable customer training in the UK | of service. These changes were the result | | ESG and climate-related issues – can | | and the development of a cost of living | of a renewed focus on listening to what | | be found in the risk management, TCFD | | dashboard through which to regularly | employees want, and most importantly | | and corporate governance sections of | | monitor changing customer behaviours. | responding to it. The impact is reected | | this report. | 58 Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | Environmental, social | | | information | summary | and governance (ESG) Social commitments and partnerships Black Insurance Industry Collective (BIIC) SEO London Insuring Women’s Futures UK Living Wage employer Gender/sex diversity at 31 December 2022 Number of senior Percentage positions on of Executive Number the Board Number in Percentage Management Percentage of Board Percentage (CEO, CFO, Executive of Executive and direct of all members of the Board SID and Chair) Management* Management* reports † employees Men 7 64% 4 7 58% 53% 49% Women 4 36% – 5 42% 47% 50% Not specied/prefer not to say – – – – – – <1% Ethnic diversity at 31 December 2022 Number of senior Percentage positions on of Executive Number the Board Number in Percentage Management Percentage of Board Percentage (CEO, CFO, Executive of Executive and direct of all members of the Board SID and Chair) Management* Management* reports † employees White British or other white (including minority-white groups) 10 91% 3 9 82% 83% 74% Mixed/multiple ethnic groups – – – – – 1% 2% Asian/Asian British 1 9% 1 2 18% 4% 9% Black/African/Caribbean/black British – – – – – 6% 7% Other ethnic group, including Arab – – – – – – 3% Not specied/prefer not to say – – – – – 6% 4% * For the purposes of the UK Listing Rules, Executive Management includes the Group Executive Committee (the most senior executive body below the Board) and the Company Secretary, excluding administrative and support staff. † For the purposes of the UK Corporate Governance Code, senior management (which for consistency we refer to as Executive Management in the tables above) includes the Group Executive Committee and the Company Secretary and their direct reports, excluding administrative and support staff. Our approach to gender/sex and ethnicity data collection and reporting is consistently applied in the countries where we collect this data, according to local law and custom. We use the Group’s online HR management system, Workday, to collect and securely store this data. In all countries, employees can choose to self-report their gender/sex or specify that they ‘prefer not to disclose’. In the countries where we collect ethnicity data (currently UK, Bermuda, USA and Guernsey), employees can choose to self-report their ethnicity, specify that they ‘prefer not to disclose’, or not provide an answer at all (leave blank). The self-reported ethnicity options provided in each country are aligned to the options provided in that country’s government census, and have been collated corresponding to the UK Listing Rules’ prescribed categories. Any ethnicities reected in a country’s census that do not align with one of the prescribed categories in the table were included in the ‘other ethnic group’ row data. The data reported here includes the self-reported data provided by our employees in the countries where we collect the data. For any data categories where an employee has not provided a response, these employees are counted in the ‘not specied/prefer not to say’ row. We do this so that, to the best of our abilities, all employees in the countries where we collect the data are accounted for. The data does not include employees in countries where we do not collect the data. Note: some totals may not tally due to rounding. 59Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | 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 | s discussion and approval at the | | requirements and competencies of | | --- | --- | --- | --- | | Board’s Task Force on Climate-related | | Sustainability Steering Committee | a climate-informed board alongside | | Financial Disclosures (TCFD) is a | | of the 2022/23 ambitions outlined in | horizon scanning of future expectations | | requirement of the Financial Conduct | | our 2022 climate report; | and regulatory requirements. This is now | | Authority (FCA) for all premium-listed | s annual review of the ESG exclusions | | an annual feature in the Board calendar | | rms on a ‘comply or explain’ basis. | | policy and the responsible | so we will continue to build expertise at | | | | investment policy, coordinated by | our most senior level in 2023. | | We have been reporting against the | | the ESG working group (and, in the | | | TCFD-aligned ClimateWise Principles | | case of the responsible investment | Other opportunities to further build | | since 2019 and are public supporters | | policy, the Group Investment team) | in-house expertise are also considered | | of TCFD. Our annual climate report sets | | and approved by the Sustainability | on a team-by-team, function-by-function | | out our approach to climate-related | | Steering Committee; | basis. For example, senior members | | matters in every part of our business, | s meetings with catastrophe | | of our in-house investment team have | | including from a governance, risk | | model vendors to discuss latest | upskilled in ESG and climate matters by | | management, operations, underwriting, | | modelling developments, led by | gaining accreditation in the form of the | | investment, and marketing perspective. | | our catastrophe modelling team, | CFA Certicate in ESG Investing, and by | | It is our richest source of climate-related | | which contribute to the work of | attending a course led by The University | | information and expands on the | | the Natural Catastrophe Exposure | of Oxford’s Sustainable Finance Group. | | information set out below, so for | | Management Group (see page 64); | | | more information go to: | s deep-dive session with the Board | | We will consider further ESG or | | hiscoxgroup.com/2022climatereport. | | on how we account for the effects | climate-specic training in 2023 | | | | of climate change in our modelling. | as appropriate. | Governance | Structure and oversight | In our UK legal entities, this structure | Policies and processes | | | --- | --- | --- | --- | | We have an established and embedded | is bolstered by the appointment of | The governance structure we have | | | governance structure for climate-related | senior managers with overall regulatory | embedded for climate issues is also | | | matters, with robust and rigorous | responsibility for managing the nancial | supported by a range of relevant policies | | | processes for identifying, measuring, | risks from climate change, in line with | and processes that we expect both our | | | monitoring, managing and reporting | the UK’s Senior Managers Certicate | staff and our third-party providers to | | | climate-related matters (including | Regime (SMCR). The climate action plans | adhere to. These include the following: | | | climate-related risks and opportunities) | we have developed as part of SMCR are | s the Hiscox Group ESG exclusions | | | across the Group. This spans from an | considered not only through the relevant | | policy, more information on which | | operational level up to the Sustainability | management meetings and subsidiary | | can be found on page 56. Oversight | | Steering Committee, the Risk Committee | boards but also at the Sustainability | | of this policy belongs to the | | of the Board, and the Board itself – | Steering Committee to ensure appropriate | | Sustainability Steering Committee, | | see page 64 for an overview of | inputs and oversight and drive progress. | | with implementation of it driven | | structure, membership, roles and | | | at a business unit and function | | responsibilities and frequency of | Training and building expertise | | level across both underwriting and | | meetings, including management’s | We also consider the training and | | investments. The policy is reviewed | | role in assessing and managing | development requirements of those | | annually and its 2022 review | | climate-related risks and opportunities. | with oversight responsibilities and | | resulted in no changes; | | | accountability for climate matters to | s the Hiscox Group responsible | | | While this structure also covers broader | ensure we have appropriate awareness | | investment policy, which outlines our | | ESG matters, climate-related matters | and expertise to drive progress. In 2022, | | expectations of both our in-house | | are an important component of this | this included an externally facilitated | | investment team and our external | | and as such are regularly debated | climate training session, available | | asset managers. This includes: | | and discussed. During 2022, this included: | to all Board Directors, to explore the | | our investment processes and | 60 Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | Task Force on | | | information | summary | Climate-related Financial Disclosures (TCFD) | | 46 | | 64 | | --- | --- | --- | --- | | Find out more about our modelling | | Find out more about our governance | | | of extreme natural catastrophe | | structure for climate-related matters. | | loss scenarios. | | stewardship activities as we look | | including our commitment to | public reporting and disclosures. | | | --- | --- | --- | --- | --- | --- | | | to invest in companies that have | | fairness in the supplier selection | This includes owned reports such as | | | | sound ESG practices; how we | | process; supplier diversity; | our annual climate report, as well as | | | | evaluate our managers’ ESG | | engagement; our expectations of | global standards that provide a means | | | | integration; and our approach to | | how our suppliers behave as well | of independent peer comparison | | | | impact investing. This policy is | | as their obligations in adhering to | such as CDP, ClimateWise, Dow | | | | owned by the Group investment | | laws and regulations regarding | Jones Sustainability Index, MSCI and | | | | team with oversight from both the | | employment, health and safety, | Sustainalytics. An overview of our | | | | Sustainability Steering Committee | | human rights and labour practices, | 2022 performance resulting from these | | | | and the Group Investment | | the environment, diversity and | disclosures can be found on page 65. | | | | Committee. The policy is reviewed | | inclusion, and anti-bribery and | These scores are used to inform areas | | | | annually and its 2022 review resulted | | corruption. It is owned by our | of improvement for the year ahead, | | | | in some small adjustments to | | Group procurement team, | alongside our own ESG plans, with the | | | | reect progress, such as becoming | | shared with suppliers during | resulting action plans agreed by the | | | | a Principles for Responsible | | the procurement process and | Sustainability Steering Committee. | | | | Investment (PRI) signatory; | | published on hiscoxgroup.com. | | | | s the Hiscox Group environmental | | | The supplier code of conduct | Strategy | | | | policy, which outlines our approach | | superseded the ethical guide to | Annual business planning | | | | to managing the environmental | | suppliers during 2022. | ESG and specically climate issues | | | | impact of our business activities | | | form part of the Board-approved Group | | | | and those that arise from our | These governance policies and | | business plan for the year ahead. This | | | | ownership and occupation of | processes are complemented by our | | plan outlines the performance of key | | | | ofce premises. We actively | long-standing active risk management | | business areas during the prior year, | | | | manage and aim to minimise our | practices, which include climate-related | | and the strategic priorities for the | | | | environmental impacts, due to | stress testing and scenario analysis | | year ahead. Areas covered include | | | | the resources we consume and | (see pages 46 to 47), both through our | | underwriting, investments, risk, IT, | | | | the amount of waste our activities | own established internal programme | | nance and marketing, as well as | | | | produce, as well as complying with | of stress testing and scenario analysis | | sustainability, and the plan is used by | | | | relevant environmental legislation | and also as participants in market-wide | | senior management to guide the Group’s | | | | and other external requirements. | activities such as the Bank of England’s | | annual business strategy and nancial | | | | While the policy is owned by our | Climate Biennial Exploratory Scenario | | planning where appropriate. | | | | Chief Operations and Technology | (CBES) in 2021 and the PRA’s General | | | | | | Ofcer and reviewed periodically, | Insurance Stress test (GIST) in 2022. | | The 2022 Group business plan included | | | | its effective implementation relies | Examples of the outputs of our internal | | an overview of key climate-related areas | | | | on Group-wide adherence to the | work include the property extreme loss | | of focus for the year ahead such as: | | | | environmental principles we wish to | scenarios detailed on page 46, which | | s an annual review of the Group | | | | live by. During 2022, it was updated | show the potential nancial impact to | | | ESG exclusions policy and the | | | to reect the Group’s new net-zero | the Group of events including Japanese | | | responsible investment policy, both | | | aligned GHG targets; | earthquake, Japanese windstorm, | | | of which were completed during | | s the Hiscox Group supplier code | | European windstorm, US earthquake | | | 2022, with any recommended | | | of conduct, which outlines how | and US windstorm. Our risk management | | | changes to the policies approved | | | our corporate values and | practices also include the work of our | | | through the appropriate | | | commitments to doing business | exposure management groups, which | | | governance channels; | | | in a socially responsible way | is outlined on pages 63 to 65. | | s the development of a broader | | | | extends to our relationships with | | | | suite of climate risk metrics and | | | suppliers and any subcontractors | Our governance work culminates in | | | transition pathway-aligned targets | | | they may use. It covers areas | regular, repeatable climate-related | | | for the investment portfolio, which | 61Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | Task Force on | | | information | summary | Climate-related Financial Disclosures (TCFD) GHG emissions are calculated according to the Greenhouse Gas Protocol: A Corporate Accounting 57 and Reporting Standard (revised edition) and UK government SECR guidelines. Note some emissions totals may not tally due to rounding. More information on our approach Find out more about our full GHG to ESG and, in particular, inventory, including emissions arising This table shows Group GHG emissions in line with SECR requirements, which differ from our full GHG climate can be found at from our investment portfolio. inventory on page 57. In our full GHG inventory hiscoxgroup.com/responsibility. you will nd information on emissions arising from investments, business travel and other elements not required under SECR. has been considered during 2022 Near-term climate risks and opportunities Medium- to long-term climate risks and as part of the creation of an ESG (0-5 years) opportunities (5+ years, up to 2050) dashboard for investments, and More frequent and more intense natural Climate-related risks have the shared with all relevant working catastrophes arising from climate change, longer-term potential to impact groups and committees, up to such as oods and storms, could result regulatory risk, credit risk, legal risk, and including the Investment in changes to current claims patterns. reputational risk, and technology risk. Committee of the Board; These claims will not only come from We have several emerging risks forums s enhancements to existing damage to property but also from other across the organisation which are processes for measuring knock-on effects, such as global supply designed to identify emerging, and monitoring the Group’s chain disruption or scarce resources. longer-term risks and opportunities, carbon emissions, which were However, given the majority of the policies including climate-related risks and addressed during 2022 through we write are annual (re)insurance policies, opportunities. Alongside our in-house the introduction of a half-year we regularly consider our exposures to modelling and research expertise, footprinting process to provide climate-related risks which gives us the these groups ensure our work takes mid-year oversight of the data and opportunity to adjust pricing and appetite into account climate-related issues which further improved data quality. accordingly. An overview of our modelling over a range of business planning of extreme natural catastrophe loss time frames. These outputs are included as part of scenarios can be found on page 46. the 2022 performance review within | the 2023 Group business plan, with | There are also the nancial risks which | There is also the longer-term litigation | | --- | --- | --- | | new strategic deliverables (including | could arise from the transition to a | risk: that those who have suffered loss | | climate-related deliverables) set for the | lower-carbon economy, such as a slump | from climate change might then seek to | | year ahead. | in the price of carbon-intensive nancial | recover those losses from others who | | | assets. Our ESG exclusions policy, | they believe may have been responsible. | | Climate-related risks and opportunities | which will see us reduce our exposures | Where such claims are successful, those | | We consider climate change to be a | to the worst carbon emitters in both | parties against whom the claims are | | cross-cutting risk with the potential to | underwriting and investments, prepares | made may seek to pass on some, or all, | | impact each existing risk type. It could | us for this as do our new GHG emission | of the cost to insurance rms through | | have a material impact on the Group, | reduction targets. For more information, | policies such as professional indemnity | | by altering the frequency and severity | see page 56. | or directors and ofcers’ insurance. | of extreme weather events that we are We have signicant expertise in areas While in the long term as a property exposed to through our underwriting, such as ood, where we have a suite casualty insurer, Hiscox is certainly but it could also present an opportunity, of products and considerable risk exposed to climate-related risks, we driving greater demand for cover against experience; renewable energy where believe our exposures can be managed changing weather trends and creating we are supporting a number of major through time as a result of how we a need for innovative new products that wind and solar energy projects; and in conduct our business. For example, meet emerging needs. the decommissioning of offshore carbon through the exibility we have in our assets which is an area we insure. These predominantly annual underwriting In addition to the physical impacts of are lines of business where we could see contracts, and through the liquidity a changing climate, the Group is also increased opportunity over time, and in of our investment portfolio which lends aware that the transition to a low-carbon some cases are already benetting from itself to constant adjustment. This economy, necessary to limit the worst changing customer trends, for example exibility is our key tool for managing physical impacts of global warming, in US ood, where demand is growing the multi-decade challenge of climate also presents signicant business and our product offering, use of data and risks holistically. challenges, as well as opportunities. technology means we are well placed to One example of this is climate litigation serve more customers with ood cover. risk, where one party may seek to 62 Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | Task Force on | | | information | summary | Climate-related Financial Disclosures (TCFD) Streamlined Energy and Carbon Reporting (SECR) GHG emissions | | 2022 | | 2022 | | 2021 | | 2021 | | | Year-on-year | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | energy | emissions | | | energy | emissions | | | change in emissions | | | | | Activity | (kWh) | | (tCO | 2 e) | (kWh) | | (tCO | 2 e) | | | (tCO | 2 e) | Scope 1 total 786 678 16% Natural gas 2,439,188 445 2,342,644 441 1% Company cars 1,048,235 250 37 7,0 5 6 87 189% Refrigerants 91 150 -39% Scope 2 (market-based) total 927 866 7% Electricity (location-based) 5,311,279 1,313 5,603,303 1,484 -12% Electricity (market-based) 5,311,279 874 5,603,303 847 3% District heating 307,720 53 108,999 19 182% Operational Scope 3 total 19,298 17,116 13% Total operational footprint (market-based) 21,011 18,660 13% Total Scope 1 and 2 – UK proportion (market-based) 29% 36% -20% | recover climate-change-related losses | rms’ exposures and business models. | and emerging) and so is structured in | | --- | --- | --- | | from another who they believe may | Industry-wide stress tests such as | a way that allows us to continually and | | have been responsible. | the GIST support our established and | consistently manage the various impacts | | | embedded programme of internal stress | of climate risk on the risk prole. For | | The governance and risk management | testing and scenario analysis, and | example, relevant climate considerations | | structures we have in place are critical | contribute to their continued evolution. | are included in our risk and control | | to the delivery of the annual Group | | register and our risk and control | | operating plan (outlined above) and | In order to meet future disclosure | self-assessment process, as well as | | ensure a coordinated approach to | requirements in this area, we continue | in our risk policies. This means that | | climate and other issues across the | to review a range of scenario impacts | climate-related risk drivers are assessed | | Group. These structures are supported | through internal workshops, from which | and recorded against the risks on our | | by investments in technology – to ensure | potential management actions can | risk and control register, and ensures | | the right modelling and data are available | be identied and our strategy and risk | that we do not consider any single | | to support our pricing and exposure – | management approach can be further | climate risk factor in isolation. | | and by in-house expertise – where we | rened. This includes planned activity | | | combine off-the-shelf climate views with | for 2023 to review our underwriting | Structure and oversight | | our own claims expertise and insight | portfolios against a range of global | Our Risk Committee has the main | | to form a unique view (what we call the | warming scenarios, including a below | responsibility for assessing the | | ‘Hiscox view of risk’). | two degrees scenario, using both our | climate-related risks and opportunities | | | own and credible third-party data around | we face. It advises the Board on how | | Therefore, we consider the potential | future target states for climate. We will | best to manage the Group’s risks, | | impact from climate-related issues over | provide a further update on our progress | by reviewing the effectiveness of risk | | short-, medium- and long-term time | in this area in our 2023 Annual Report. | management activities and monitoring | | horizons which are dened opposite | | the Group’s actual risk exposure. The | | and which broadly align with business | Risk management | Risk Committee relies on frequent | | planning timeframes. | Approach | updates from within the business, | | | While there are certain nuances to | including those arising from the | | In 2022, Hiscox Syndicate 33, Syndicate | climate risk, we consider it to be a | management committees and working | | 3624 and Hiscox Insurance Company | cross-cutting risk with potential to | groups that report up through the Risk | | (HIC) participated in the Bank of | impact each existing risk type, rather | Committee, some of which are outlined | | England’s General Insurance Stress | than a stand-alone risk. Climate-related | below, and from independent risk experts | | Test Exercise (GIST). The objectives | risks, among other major exposures, are | for its understanding of the risks facing | | of the GIST 2022 exercise were to | monitored and measured both within | both our business and the wider industry. | | assess resilience to severe but plausible | our business units and at Group level, | | | natural catastrophe, as well as cyber | so we understand how much overall | Group Underwriting Review (GUR) | | scenarios, to gather information about | risk we take and what is being done | The GUR is a Group management | | rms’ modelling and risk management | to manage it. We look at how different | committee focused on assessing progress | | capabilities and to enhance the PRA’s | risks interact and whether these may | against the Group’s strategic underwriting | | and rms’ abilities to respond to future | result in correlations or concentrations | priorities, reviewing and challenging | | shocks. While the exercise did not aim to | of exposure that we need to know about, | the Group’s underwriting portfolio and | | assess the nancial impact specically | monitor and manage. | loss ratio performance, and approving | | from climate change, the climate-related | | key underwriting risks. It also serves | | (atmospheric) scenarios it explored – US | By design, our Group risk management | as an escalation point for underwriting | | hurricanes, European/UK windstorms | framework provides a controlled and | governance and control issues. | | and UK ood – represented severe | consistent system for the identication, | | | but plausible realisations of current | measurement, mitigation, monitoring | The committee meets at least ve | | climate conditions chosen to reect | and reporting of risks (both current | times a year, is chaired by the Group | 63Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | Task Force on | | | information | summary | Climate-related Financial Disclosures (TCFD) ESG governance structure Chief Executive Ofcer, and attended How we manage and monitor ESG issues to ensure appropriate accountability and by other senior leaders including the oversight. This structure is supported by other established roles and teams that Group Chief Financial Ofcer, Group contribute to our ESG story. These include our employee-led networks including our Chief Underwriting Ofcer, Group green teams, our governance committees, and our Natural Catastrophe Exposure Chief Risk Ofcer – with experts invited Management Group. These areas are represented in elements of this structure. from actuarial, claims, underwriting risk and reinsurance. Board s Oversight of long-term ESG vision, strategy, priorities and performance A number of working groups feed into against agreed metrics and targets. the GUR, including some with particular s Ensures governance and accountability in place with sufcient support. climate relevance such as the Natural s Typically twice-yearly discussion on ESG strategy, trends, opportunities, Catastrophe Exposure Management vulnerabilities, and emerging issues. Group (see below) and the Casualty Exposure Management Group, which Risk Committee considers among other things risks s Advises Board on ESG strategy, key priorities, risk prole, risk exposures associated with climate litigation. and opportunities. s Recommends proposals for consideration by the Board as required. In focus: the Natural Catastrophe Exposure Management Group Group Risk and Capital Committee Group Executive Committee (GEC) We review natural catastrophe risk at (GRCC) s Periodic ESG sessions. least quarterly, through our Natural s Quarterly reporting on ESG s Sets business unit or function Catastrophe Exposure Management matters from Sustainability ESG-related strategy, priorities Group. This group is chaired by the Steering Committee. and drives delivery through Group Chief Underwriting Ofcer s Sets high-level Group strategy, business units and functions. and attended by other Hiscox senior priorities and ensures delivery managers with responsibility for across the Group. catastrophe-exposed business. This group looks at the risk landscape, Sustainability Steering Committee (SSC) exposure monitoring and capital s Sub-committee of the GRCC, responsible for execution of the agreed ESG modelling for climate-related perils, strategy, driving actions and delivery at a Group level. and recommends, based on the latest s Typically meets quarterly and embeds sustainability risks and opportunities. observations and scientic knowledge, s Oversees effective use of resources and tracks Group and entity-level which models should be used for sustainability performance. each peril, and, if necessary, how they s Ensures senior management-level involvement and accountability for should be adapted to reect our best sustainability issues, with senior representation from areas including view of the risk. They also identify new underwriting, investments and operations. areas of risk research. ESG working group All changes to modelling policy and s Operational body, providing central point of coordination and expertise for all of our research prioritisations and ESG-related activity across the Group. results are signed off and authorised s Manages ESG-related Group reporting, disclosures and communications. by this group, decisions are recorded, s Meets monthly and provides input and recommendations to management and models are adapted to reect on ESG matters. policy. Their work not only enables us s Focuses on ESG-related research, including external monitoring to continuously rene our models (using and expectations. data to make better decisions): it also supports future product development. 64 Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | Task Force on | | | information | summary | Climate-related Financial Disclosures (TCFD) ESG disclosure 2022: B grade 2022: AA grade We recognise the importance of credible, 2021: B- grade 2021: A grade repeatable and comparable ESG disclosure which is why we contribute to a number of independent ESG standards. 2022: 83% 2022: 28.7 2021: 72% 2021: 27.1 2022: 45/100 2021: 40/100 For example, we have calibrated and to ensure Hiscox has the relevant grey s engage with our suppliers, brokers delivered a loss model that will improve swans identied and the right actions in and reinsurers on our net-zero the pricing capabilities for one of our place to deal with them. targets and on their plans to adopt ood insurance products, FloodPlus. Paris-aligned climate targets; We also included the use of additional A number of elements feed into this s monitor emerging standards model sources for location-level process including enterprise emerging risk around underwritten emissions pricing. In addition, we are working with scanning; regulatory horizon scanning; and collaborate across our industry data providers to augment FloodPlus casualty exposure management; on their development, aligning with rst-oor elevation data, and are strategic and business planning; claims with best practice in this area as exploring the use of machine learning and actuarial reserving; and any other it emerges. to augment the information we receive relevant business unit or function inputs. * Baseline year adjusted in light of Covid-19-related from vendor ood hazard maps. lockdown measures,to reect a more normal year Rapidly evolving expectations on in terms of business travel etc. † Group Risk and Capital company’s responses to ESG and Operational Scope 3 emissions predominantly consist of purchased goods and services and Committee (GRCC) climate change is considered as part of capital goods, and business travel (air, rail and car The GRCC is a Group management this group, in addition to other matters travel). More information on the Group’s operational committee focused on risk and capital unrelated to ESG or climate change. Scope 3 emissions can be found on page 57. management. It covers all types and | categories of risk, including but not | The risk management processes we | | Interim GHG targets and progress | | | --- | --- | --- | --- | --- | | limited to underwriting, reserving, | have established and embedded for | | We recognise that achieving these targets | | | market, credit, operational and strategic | climate-related matters feed into the | | will take collective, consistent effort and | | | risk (see pages 8 to 11 for a summary of | annual review of the operating plan, the | | have started work towards achieving | | | our key risks), as well as risk aggregation, | long-term strategy planning process, | | them, as outlined below. This will continue | | | concentration and dependencies. | as well as forward-looking assessment | | in 2023, when we will also publish our | | | | scenarios and stress tests and reverse | | low-carbon transition plan for the Group. | | | The committee meets four times a | stress test scenarios. | | s In addressing our Scope 1 and | | | year, is chaired by the Group Chief | | | | Scope 2 targets, we have this year | | Executive Ofcer, and attended by | Metrics and targets | | | introduced a new half-year carbon | | other senior leaders including the | The cornerstone of our climate-related | | | footprint process in order to further | | Group Chief Financial Ofcer, Group | metrics and targets is our Board-approved | | | enhance data transparency and | | Chief Underwriting Ofcer, Group | GHG emission reduction targets, which | | | provide a new midpoint for internal | | Chief Risk Ofcer, and the Group | were created using SBTi methodologies | | | tracking and review. We have also | | Head of Capital Management – with | that align with a 1.5°C net-zero world | | | reviewed all electricity contracts | | other experts invited from across the | by 2050. This is in keeping with our | | | across the Group to further improve | | business as required. | commitments as a signatory to the | | | our evidence base and oversight as | | | 2015 Paris Climate Agreement. | | | we migrate to renewable electricity | | A number of committees feed into | | | | contracts wherever possible. | | the GRCC, including some with | GHG targets | | | Where we have total control over | | particular climate relevance such as | Our GHG targets commit us to: | | | our utility providers, this is easier to | | the Sustainability Steering Committee | s reduce our Scope 1 and Scope 2 | | | do, but where that control is shared, | | and the Grey Swan Group (see below). | | emissions by 50% by 2030, | | or where it belongs to our landlords, | | | | against a 2020 adjusted baseline*; | | we will petition for change. | † | In focus: the Grey Swan Group | s reduce our Operational Scope 3 | | s On Scope 3, where emissions are | | | --- | --- | --- | --- | --- | | The focus of the Grey Swan Group is to | | emissions by 25% per FTE by 2030, | | dominated by our investments, | | consider various enterprise emerging | | against a 2020 adjusted baseline*; | | as previously announced we have | | risks identied from across the business | s transition our investment portfolios | | | set a number of interim targets: | | and to provide a forum for discussion | | to net-zero GHG emissions by 2050; | | that we will aim for more than | 65Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | Task Force on | | | information | summary | Climate-related Financial Disclosures (TCFD) | | These activities are owned by the | TCFD disclosure mapping 25% of our corporate bond | Disclosures have been made against the TCFD recommendations, taking into account the TCFD supporting guidance, and in | | | | --- | --- | --- | --- | --- | --- | | portfolio by invested value to have | relevant business areas, from | compliance statement | consideration of the FCA listing rules. Where additional information outside of this report aids our TCFD disclosure, links to this | | | | net-zero/Paris-aligned targets by | underwriting to investments, with | | information have been provided, and where we have not yet disclosed fully against the recommended TCFD disclosure, we have | | | | 2025, followed by an additional 25% | progress reported through the | | outlined why this is and the actions already being taken towards meeting the disclosure requirements within the timeframe given. | | | | by AUM coverage every ve years | embedded ESG governance | | | | | | as we aim to be on a linear path | structures. These metrics and targets | Theme Recommended disclosure Status Reference | | | | | to 100% portfolio coverage by | are complemented by external key | | | | | | 2040. We are currently making | performance indicators, such as | Governance | Describe the organisation’s governance around | Disclosed. 2022 climate report* pages 9 to 12. | | | good progress towards the | our public ESG disclosure scores | Disclose the organisation’s | climate-related risks and opportunities. | | CDP climate questionnaire 2022. | | rst of our interim targets, with | (see page 65) and our annual climate | governance around climate-related | | | | | | | | Describe management’s role in assessing and | Disclosed. 2022 climate report* pages 15 to 16. | | | approximately 20% of our | report, which assess our progress | risks and opportunities. | | | | | | | | managing climate-related risks and opportunities. | | CDP climate questionnaire 2022. | | corporate bond portfolio having | against climate-related activities | | | | | | net-zero/Paris-aligned targets | during the prior year and outlines | Strategy | Describe the climate-related risks and | Disclosed. 2022 climate report* pages 24 and 28. | | | as at year-end, and will continue | our plans for climate-related action | Disclose the actual and potential impacts | opportunities the organisation has identied | | CDP climate questionnaire 2022. | | to engage with our managers on | in the year ahead. | of climate-related risks and opportunities | over the short, medium, and long term. | | | | further net-zero plans and action. | | on the organisation’s businesses, | | | | | | | | Describe the impact of climate-related risks and | Focus on developing | CDP climate questionnaire 2022. | strategy, and nancial planning opportunities on the organisation’s businesses, low-carbon transition plan Progress against these targets will be where such information is material. strategy, and nancial planning. to enhance disclosure. driven by our ESG working group and | overseen by our Sustainability Steering | Describe the resilience of the organisation’s | Focus on identifying risks | 2022 climate report* page 13. | | --- | --- | --- | --- | | Committee. Progress will also be | strategy, taking into consideration different | and opportunities to | More information on steps being | | recorded through our annual carbon | climate-related scenarios, including a 2°C | progress towards disclosure. | taken towards meeting this disclosure | | reporting cycle, and we will seek to remain | or lower scenario. | | requirement can be found on page 63. | operationally carbon neutral through Risk management Describe the organisation’s processes for Disclosed. 2022 climate report* pages 15 to 16 offsetting, as we have been since 2014. Disclose how the organisation identifying and assessing climate-related risks. and 27 to 32. More information on our 2022 carbon identies, assesses, and manages CDP climate questionnaire 2022. emissions can be found on page 57. climate-related risks. | | Describe the organisation’s processes for | Disclosed. 2022 climate report* pages 15 to 16 | | | --- | --- | --- | --- | | Metrics and targets beyond GHG | managing climate-related risks. | | and 27 to 32. | | s The monitoring and measurement | | | CDP climate questionnaire 2022. | of underwriting and investment Describe how processes for identifying, assessing, Disclosed. 2022 climate report* pages 10 to 13 exposure to carbon-heavy sectors and managing climate-related risks are integrated and 15 to 16. including coal-red power plants into the organisation’s overall risk management. CDP climate questionnaire 2022. and coal mines, oil sands and Arctic | | energy exploration (beginning | Metrics and targets | Disclose the metrics used by the organisation | Additional indicators to monitor | 2022 climate report* pages 21 and 37. | | --- | --- | --- | --- | --- | --- | | | with the Arctic National Wildlife | Disclose the metrics and targets | to assess climate-related risks and | and manage risk exposure, | CDP climate questionnaire 2022. | | | Refuge), in line with our Group | used to assess and manage relevant | opportunities in line with its strategy | including TCFD’s cross-industry | See Hiscox Group website. | | | ESG exclusions policy. | climate-related risks and opportunities | and risk management process. | climate-related metrics, to be | | | s Annual investment portfolio | | where such information is material. | | considered over time. | | sustainability reviews, taking Disclose Scope 1, Scope 2 and, if appropriate, Disclosed. 2022 climate report* pages 36 to 37. into account climate-related Scope 3 GHG emissions and the related risks. CDP climate questionnaire 2022. issues, in line with our responsible See Hiscox Group website. investment policy. | s The growth and exposure of | | Describe the targets used by the organisation to | Disclosed. 2022 climate report* pages 36 to 38. | | | --- | --- | --- | --- | --- | | | sustainable underwriting products | manage climate-related risks and opportunities | | CDP climate questionnaire 2022. | | | such as ood and renewable | and performance against targets. | | | energy products. 66 Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | Task Force on | | | information | summary | Climate-related Financial Disclosures (TCFD) Read more in our 2022 CDP disclosure Read more about our approach to hiscoxgroup.com/cdpdisclosure2022. climate change in our 2022 climate report*, available online at hiscoxgroup.com/2022climatereport. * Our 2022 climate report was published in August2022 and covers our climate-related activities between July 2021 and July 2022. Where we reference information from that report, that information remains correct at 8 March 2023. TCFD disclosure mapping Disclosures have been made against the TCFD recommendations, taking into account the TCFD supporting guidance, and in compliance statement consideration of the FCA listing rules. Where additional information outside of this report aids our TCFD disclosure, links to this information have been provided, and where we have not yet disclosed fully against the recommended TCFD disclosure, we have outlined why this is and the actions already being taken towards meeting the disclosure requirements within the timeframe given. Theme Recommended disclosure Status Reference Governance Describe the organisation’s governance around Disclosed. 2022 climate report* pages 9 to 12. Disclose the organisation’s climate-related risks and opportunities. CDP climate questionnaire 2022. governance around climate-related Describe management’s role in assessing and Disclosed. 2022 climate report* pages 15 to 16. risks and opportunities. | | managing climate-related risks and opportunities. | | CDP climate questionnaire 2022. | | --- | --- | --- | --- | | Strategy | Describe the climate-related risks and | Disclosed. 2022 climate report* pages 24 and 28. | | | Disclose the actual and potential impacts | opportunities the organisation has identied | | CDP climate questionnaire 2022. | | of climate-related risks and opportunities | over the short, medium, and long term. | | | on the organisation’s businesses, Describe the impact of climate-related risks and Focus on developing CDP climate questionnaire 2022. strategy, and nancial planning opportunities on the organisation’s businesses, low-carbon transition plan where such information is material. | | strategy, and nancial planning. | to enhance disclosure. | | | --- | --- | --- | --- | | | Describe the resilience of the organisation’s | Focus on identifying risks | 2022 climate report* page 13. | | | strategy, taking into consideration different | and opportunities to | More information on steps being | | | climate-related scenarios, including a 2°C | progress towards disclosure. | taken towards meeting this disclosure | | | or lower scenario. | | requirement can be found on page 63. | | Risk management | Describe the organisation’s processes for | Disclosed. 2022 climate report* pages 15 to 16 | | | Disclose how the organisation | identifying and assessing climate-related risks. | | and 27 to 32. | | identies, assesses, and manages | | | CDP climate questionnaire 2022. | climate-related risks. Describe the organisation’s processes for Disclosed. 2022 climate report* pages 15 to 16 managing climate-related risks. and 27 to 32. CDP climate questionnaire 2022. | | Describe how processes for identifying, assessing, | Disclosed. 2022 climate report* pages 10 to 13 | | | --- | --- | --- | --- | | | and managing climate-related risks are integrated | | and 15 to 16. | | | into the organisation’s overall risk management. | | CDP climate questionnaire 2022. | | Metrics and targets | Disclose the metrics used by the organisation | Additional indicators to monitor | 2022 climate report* pages 21 and 37. | | Disclose the metrics and targets | to assess climate-related risks and | and manage risk exposure, | CDP climate questionnaire 2022. | | used to assess and manage relevant | opportunities in line with its strategy | including TCFD’s cross-industry | See Hiscox Group website. | | climate-related risks and opportunities | and risk management process. | climate-related metrics, to be | | | where such information is material. | | considered over time. | | | | Disclose Scope 1, Scope 2 and, if appropriate, | Disclosed. 2022 climate report* pages 36 to 37. | | | | Scope 3 GHG emissions and the related risks. | | CDP climate questionnaire 2022. | See Hiscox Group website. Describe the targets used by the organisation to Disclosed. 2022 climate report* pages 36 to 38. manage climate-related risks and opportunities CDP climate questionnaire 2022. and performance against targets. 67Hiscox Ltd Report and Accounts 2022 ## Q& ## A: with Regine Fiddler Chief Marketing Ofcer, Hiscox USA ## Brand ambassador ## Building an insurance brand is about ## so much more than advertising and ## digital marketing. It’s about showing ## customers, partners and brokers that ## you genuinely care. > 68 Hiscox Ltd Report and Accounts 2022 69Hiscox Ltd Report and Accounts 2022 Regine Fiddler joined Hiscox in November 2020, with a long track record of building and growing brands in the banking and ntech sectors. Based in New York, she is tasked with driving the next phase of Hiscox USA’s brand-building to support its laser focus on small business insurance. though we’re also continuing to serve businesses with up to $100million in revenue. Writing anything over that ## Q& wasn’t core to our expertise. As a result, we’ve slimmed down our appetite for products that were being sold to | A: | companies over $100million. Unlike a | | --- | --- | | with Regine Fiddler | lot of carriers, we remain truly focused | | Chief Marketing Ofcer, Hiscox USA | on small business. There is plenty of | opportunity in that space – we have over 30million small businesses in the USA! So many successful companies start out with entrepreneurs that have one or two employees. Give them what they need, and they’ll stay with you as they grow. That’s how we’ll win in this category. Q: When you’re dealing with smaller, | Q: What was it that initially drew | when you go through our e-commerce | more entrepreneurial businesses, what | | --- | --- | --- | | you to joining Hiscox? | experience, do you get the emotional | are the buttons you’re trying to push? | | A: For me, the key drivers were what | benet of knowing who we are and what | A: One of the main problems for small | | Hiscox stands for as an employer and | our value proposition is? Do you feel, | businesses in choosing insurance is they | | how I saw that exhibited through our | “Hey, these people really are experts, | think it’s complex and time-consuming, | | advertising to customers, brokers and | and they’re so efcient and reliable”? | and they don’t really understand it. | | agents. What I thought was compelling | Do we make you feel like you’ve got a | Their pain point is, “This is complicated, | | was that we capture the small business | partner who’s really got you covered? | I don’t even know why I need it”. What we | | audience in a way that other brands | Advertising and digital marketing are | should be thinking is, how do we provide | | typically don’t. It’s very authentic, it’s | important, but it’s the soft skills that | the information they need in a way that’s | | very real. For a marketer, insurance may | we exhibit in our interactions that | digestible? Through content marketing, | | not seem like the sexiest sector, but I | matter most. Especially in a commodity | we want them to understand why it’s | | love industries where marketing isn’t just | business, customers don’t rave if you | important to have insurance, what it | | about selling a pretty product. It’s about | only deliver what they expect. We need to | covers, and what is most applicable to | | a product that can make a real difference | go beyond that. We need to show that we | them. It’s about educating the customer | | in people’s lives. Also, insurance isn’t | genuinely care. Every interaction, every | and providing them with efcient | | something that’s easy to market, so it | communication, has to exhibit that. | information to make the best decision | | challenges you a little more! | | for their business. It’s about focusing on | | | Q: Hiscox USA has been going | their needs. How do we, as our slogan | | Q: What do you think are the key | through a strategic shift on the | says, ‘encourage courage’? How do | | elements to building a successful | broker side. Tell us about that. | we help them pursue their dreams? | | insurance brand? | A: For our broker channel, our strategy | | | A: When I think about building a brand, | is to home in on where we have the | Q: What other forms of marketing | | it’s not really about advertising. It’s not | right products, as well as the right | work well for you? | | about having a pretty logo. Instead, | underwriting expertise to provide the | A: Obviously we have brand marketing | | it’s about every touchpoint that drives | very best solutions. So we made | and we have acquisition marketing, but | | an emotional benet. Whether you’re a | the decision that the sweet spot for | within that I would say about 20-25% | | customer, a partner or a broker, when | us is serving small businesses with | of our marketing balance is focused | | you pick up the phone and call us, or | annual revenues of under $25million, | on grassroots marketing. We’ve been | 70 Hiscox Ltd Report and Accounts 2022 When I think about building a brand, it’s not really about advertising. It’s not about having a pretty logo. Instead, it’s about every touchpoint that drives an emotional benet.” going to small business trade shows, be great on the digital side, but we we’ve been building connections with also know that our business is based diverse small business segments like the on relationships. A broker wants to be US Hispanic Chamber of Commerce. sure that there’s an underwriter or a For a marketer, insurance may not That allows us to interact with business relationship manager on the other end of seem like the sexiest sector, but I love owners, which is really important to the phone when they need them. Right industries where marketing isn’t just understanding what makes them tick. now, most carriers are really good at the about selling a pretty product. It’s This isn’t static, of course, and what relationship side, but they’re not really about a product that can make a real we’re seeing now is that they care developed on the digital side. Or you difference in people’s lives.” about much more than just the price of have insurtechs who are really great at insurance – they care about who’s really digital, but miss the mark when it comes standing up for them when they need to building those relationships in the retail them the most. That means a lot to us traded channel. We want to make sure because we pride ourselves on being that whoever you are, we’ve provided customer focused and having that a path to meet your needs and that’s strong customer relationship. something that makes Hiscox unique in the US market. Q: How does marketing work across | Hiscox as a global organisation? | Q: Outside of work, what gives | | --- | --- | | How connected are you with your | you energy? | | peers in other regions? | A: My family, for sure. It’s a simple thing. | | A: That’s a very timely question, | I have a 14-year-old son, and watching | | because we’re currently undergoing a | him grow up, watching him embrace life | | global brand refresh project with the | and be much braver than I ever was at | | Group. We’ve always been committed to | 14 – that is my greatest source of energy | | our brand being represented consistently | and happiness. | across the countries in which we operate, so this is about us coming together as a global marketing organisation and dening who we are right now and who we want to be as the business grows. We’re now testing a couple of concepts with customers across different countries so it’s a pretty exciting time. Q: So, where do you see the biggest opportunities for Hiscox USA? A: I think it’s in our continued investment in digital. And not just in partnerships, but direct-to-consumer and in the retail trade, because brokers are going to want more tools and more technology to drive efciency across their channel. We’ve seen some of that, but it’s not over yet. I love where we stand in our digital evolution. We know that we need to 71Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | 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 71) | | Aki Hussain (Aged 50) | | Paul Cooper (Aged 50) | | | Appointed Chairman: February 2013 | | Group Chief Executive Ofcer | | Group Chief Financial Ofcer | | | Appointed to the Board: September 2006 | | Appointed to the Board: September 2016 | | Appointed to the Board: May 2022 | | | 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 experience of nancial | | | | worked for the Group for over 30 years. | | providing strategic, nancial and | | and commercial management | | s Signicant expertise in insurance cycle | | | commercial management and | | within a complex regulatory and | | | management, having worked through | | in-depth knowledge of the regulatory | | compliance environment. | | | unprecedented large loss events | | and compliance environment. | s Qualied Chartered Accountant, with | | | | such as 9/11 and Hurricanes Katrina, | s Signicant experience of driving | | | signicant experience of both the retail | | | Rita and Wilma. | | business change. | | and Lloyd’s insurance markets. | | Robert joined Hiscox in 1986 and has held a | | Aki joined Hiscox in 2016 as Group Chief Financial | | Paul joined Hiscox in 2022 as Group Chief | | | number of senior roles across the Group, including | | Ofcer and became Group Chief Executive | | Financial Ofcer. With over 25 years of nancial | | | Active Underwriter for Syndicate 33 and Group | | Ofcer in 2022. Aki also sits on the Board of a | | services experience, Paul has held a number of | | | Chief Underwriting Ofcer, before becoming Non | | number of Hiscox subsidiary companies. Prior to | | senior roles, including most recently Interim | | | Executive Chairman in February 2013. Robert is | | Hiscox, Aki held a number of senior roles across | | Group Chief Financial Ofcer at M&G Plc | | | also Chair of the Nominations and Governance | | a range of sectors, including Chief Financial | | and Chief Financial Ofcer for The Prudential | | | Committee, the Investment Committee, and the | | Ofcer of Prudential’s UK and Europe business, | | Assurance Company. Paul is a qualied | | | Hiscox Syndicates Limited Board. He joined the | | and Finance Director for Lloyds Banking Group’s | | Chartered Accountant, having trained with | | | Council of Lloyd’s in 2012 and served as Deputy | | consumer bank division. Aki is a Chartered | | PwC, and sits on the board of a number of | | | Chairman of Lloyd’s from 2017 to 2020. | | Accountant, having trained with KPMG. | | Hiscox subsidiary companies. | | | External board appointments | | External board appointments | | External board appointments | | | None. | | Visa Europe Limited. | | Association of British Insurers. | | | Executive Director | Senior Independent Director | Independent Non Executive Director | | --- | --- | --- | | Joanne Musselle (Aged 52) | Colin Keogh (Aged 69) | Donna DeMaio (Aged 64) | | Group Chief Underwriting Ofcer | Appointed to the Board: November 2015 | Appointed to the Board: November 2021 | Appointed to the Board: March 2020 Relevant skills, experience and contribution Relevant skills, experience and contribution Relevant skills, experience and contribution s Valuable nancial services experience. s Extensive nancial services experience, s Considerable underwriting expertise, s Signicant knowledge of how to run an particularly in the USA. including experience of managing international nancial business. s Proven expertise in overseeing global underwriting portfolios in our key markets. auditing activities. Colin has spent his career in nancial services, s Signicant knowledge of Hiscox, principally at Close Brothers Group plc where Donna has over 35 years’ nancial services particularly Hiscox Retail, having worked he worked for 24 years and served as CEO for experience, gained across banking and for the Group for 20 years. | | seven years until 2009. Colin is Chair of the | insurance. She was AIG’s General Insurance | | --- | --- | --- | | Joanne joined Hiscox in 2002 and has held a | Hiscox Insurance Company Limited Board and | Global Chief Operating Ofcer and also served | | number of roles across the Group, including | also of the Remuneration Committee. | as their Global Chief Auditor. Donna was Chief | | Head of UK Claims, Chief Underwriting Ofcer | | Executive and Chair of the Board at United | External board appointments for Hiscox UK & Ireland, and Chief Underwriting Guaranty, CEO and Chair of the Board at MetLife Ninety One Plc; Ninety One Ltd. Ofcer for Hiscox Retail. Joanne also sits on Bank and was a PwC Financial Services Partner. the Board of a number of Hiscox subsidiary Donna serves on the board of Hiscox Insurance companies. Prior to Hiscox, Joanne spent Company Inc. as a Non Executive Director and is almost ten years working in a variety of actuarial, Chair of the Audit Committee. pricing and reserving roles at Axa and Aviva in External board appointments both the UK and Asian markets. Azure; State Street Corporation. External board appointments Realty Insurances Ltd. 72 Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | 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 64) | | Thomas Huerlimann (Aged 59) | | Anne MacDonald (Aged 67) | | | 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 Signicant 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 Sizeable 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 Ofcer at | | | insurance industry, having worked in Australia | | reinsurance and insurance. He was CEO | | four Fortune 100 companies, and been in charge | | | and the Asia Pacic region for QBE Insurance | | Global Corporate at Zurich Insurance Group, | | of some of the most recognised brands in the | | | Group for over 20 years. Michael started his | | a $9 billion business working in over 200 | | world, including Citigroup, Travelers, Macys and | | | career as an actuary, is a Fellow of the Institute | | countries. Prior to that, he held senior positions | | Pizza Hut. Anne serves as the Employee Liaison | | | of Actuaries of Australia and served as Vice | | at Swiss Re Group and National Westminster | | for Hiscox. | | | President of the General Insurance Association | | Bank. Thomas serves on the Hiscox SA Board | | | | External board appointments of Singapore between 2006 and 2012. Michael as a Non Executive Director. Boot Barn Holdings, Inc.; IGNITE National; serves on the DirectAsia Board as a Non External board appointments Visiting Nurse & Hospice of Litcheld County. Executive Director. Leadway Assurance Ltd, Nigeria. 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 59) | | Lynn Pike (Aged 66) | | Company Secretary | | Appointed to the Board: November 2017 | | Appointed to the Board: May 2015 | | Marc Wetherhill (Aged 50) | | Relevant skills, experience and contribution | | Relevant skills, experience and contribution | | Marc has signicant legal and governance | | s Deep understanding of Bermuda’s | | s Strong background in the US nancial | | 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 Signicant 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. | Ofcer 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 serves on the Hiscox Insurance | Lynn serves on the Hiscox Insurance Company | | Company (Bermuda) Limited Board as a | Inc. Board as a Non Executive Director and is | | Non Executive Director. | Chair of the Risk Committee. | | External board appointments | External board appointments | | Argus Group Holdings Limited; Pacic Life Re; | American Express Company (NYSE: AXP); | | Gatland Holdings Jersey Limited. | American Express National Bank; Bankwork$ | Advisory; California State University Channel Islands Foundation. 73Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | Board of Directors | | information | summary | Departures and appointments Retired Non Executive Director Executive appointments Paul Cooper (effective 9 May 2022) Director duties As a company incorporated under the laws Non Executive appointments of Bermuda, Hiscox complies with Bermuda None. Company Law and as such the UK Companies Act 2006 and associated reporting regulations Executive retirements do not apply. Although there is no prescription None. of statutory duties in Bermuda, Directors are bound by duciary duties to the Company and Non Executive retirements statutory duties of skill and care. This includes Caroline Foulger exercising care, diligence, and skill that a (effective 12 May 2022) reasonably prudent person would be expected Independent Non Executive Director to exercise in a comparable circumstance. Caroline Foulger (Aged 62) The Directors act in a way that they consider in Appointed to the Board: January 2013 good faith would be most likely to promote the A resident of Bermuda, Caroline led PwC’s success of the company for the benet of its insurance and reinsurance practice in Bermuda members as a whole. until her retirement in 2012. With a strong background in accounting, she is a Fellow of the Institute of Chartered Accountants in England and Wales, a member of the Institute of Chartered Accountants of Bermuda and a member of the Institute of Directors. Caroline stepped down from the Hiscox Ltd Board at the 2022 AGM, following the conclusion of her nine-year term with the Company. 74 Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | ## Board statistics 59 Read more about gender and ethnic diversity at Hiscox. Board statistics Board diversity at 8 March 2023 | Gender | Age | Location | | --- | --- | --- | | Female 4 | 46-55 3 | USA 3 | | Male 7 | 56-65 4 | Bermuda 1 | | | 66-75 4 | Europe 6 | Asia 1 * Includes those Directors who hold Tenure Nationality a Permanent Residency Certicate. | 0-3 years 3 | British 5 | | --- | --- | | 3-6 years 4 | Bermudian* 1 | | 6-8 years 3 | American 3 | | 8+ years 1 | Swiss 1 | Australian 1 75Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | ## Group Executive Committee | Aki Hussain | | Paul Cooper | | Robert Dietrich | | | --- | --- | --- | --- | --- | --- | | Group Chief Executive Ofcer | | Group Chief Financial Ofcer | | Chief Executive Ofcer, Hiscox Europe | | | Joined Hiscox: September 2016 | | Joined Hiscox: May 2022 | | Joined Hiscox: June 1997 | | | Relevant skills, experience and contribution | | Relevant skills, experience and contribution | | Relevant skills, experience and contribution | | | s Considerable experience of | | s Considerable expertise of nancial | | s In-depth knowledge of the European | | | | providing strategic, nancial and | | and commercial management | | insurance market. | | | commercial management and | | within a complex regulatory and | s Signicant experience of bringing niche | | | | in-depth knowledge of the regulatory | | compliance environment. | | insurance products to market. | | | and compliance environment. | s Qualied Chartered Accountant, with | | | | Robert served as Managing Director for Hiscox s Signicant experience of driving signicant experience of both the retail Germany for many years, driving disciplined business change. and Lloyd’s insurance markets. expansion and building it into the agship Aki joined Hiscox in 2016 as Group Chief Financial Paul joined Hiscox in 2022 as Group Chief European business it is today. In 2021, he took Ofcer and became Group Chief Executive Ofcer Financial Ofcer to lead our team of 400 on wider responsibility for Hiscox Europe, whose in 2022. As such, Aki leads the Group Executive nance experts around the world and ensure operations span eight countries, overseeing Committee in realising the strategy, delivering the robust nancial systems and continued capital critical cross-country systems transformation business plan, and driving the Company through efciency. With over 25 years of nancial services and redening its long-term vision. its next phase of growth. Prior to Hiscox, Aki held experience, Paul has held a number of senior a number of senior roles across a range of sectors, roles, including most recently Interim Group Chief including Chief Financial Ofcer of Prudential’s UK Financial Ofcer at M&G Plc and Chief Financial and Europe business, and Finance Director for Ofcer for The Prudential Assurance Company. Lloyds Banking Group’s consumer bank division. Paul is a qualied Chartered Accountant, having Aki is a Chartered Accountant, having trained trained with PwC. with KPMG. | Hanna Kam | | Kevin Kerridge | | Kate Markham | | | --- | --- | --- | --- | --- | --- | | Group Chief Risk Ofcer | | Chief Executive Ofcer, Hiscox USA | | Chief Executive Ofcer, Hiscox London Market | | | Joined Hiscox: February 2015 | | Joined Hiscox: December 1996 | | Joined Hiscox: June 2012 | | | Relevant skills, experience and contribution | | Relevant skills, experience and contribution | | Relevant skills, experience and contribution | | | s Qualied actuary with in-depth | | s Signicant expertise in, and at the | | s Strong experience of building | | | | enterprise risk management and | | forefront of, how digital is reshaping our | | customer-focused businesses. | | | insurance expertise. | | industry landscape. | s Track record of establishing operational | | | s International property and casualty | | s Multi-market, ground-up experience of | | | and digital infrastructures that support | | | insurance industry experience gained | | building omni-channel retail businesses. | | protable growth. | within corporates and consultancies Kevin has held a number of strategic planning, Kate originally joined Hiscox to run our UK across the UK and Australia. | | leadership and operational roles across | Direct business, and was promoted to Chief | | --- | --- | --- | | Hanna leads our global team of risk and | the Group and was an early pioneer of our | Executive Ofcer of Hiscox London Market in | | compliance experts, located in our key | eCommerce approach, having set up and run | 2017. She leads our team of 300 London Market | | geographies and jurisdictions. She has | our UK Direct business before relocating to | underwriters, analysts and support functions in | | Group-wide responsibility for Hiscox’s | establish our digital operations in the USA. He | the UK, Guernsey and the USA. In addition, Kate | | enterprise risk management and regulatory | has led Hiscox USA since 2021, which now | is the Group’s Executive Sponsor for diversity | | compliance, and manages our relationships | spans nine ofces and over 500 employees, | and inclusion. | | with regulators. | overseeing product and service innovations and | | a programme of technology re-platforming that can support our signicant growth ambitions in the region. 76 Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | Group Executive | | information | summary | Committee | Jon Dye | | Stéphane Flaquet | | Nicola Grant | | | --- | --- | --- | --- | --- | --- | | Chief Executive Ofcer, Hiscox UK | | Group Chief Operations and Technology Ofcer | | Group Chief Human Resources Ofcer | | | Joined Hiscox: September 2022 | | Joined Hiscox: March 2010 | | Joined Hiscox: September 2022 | | | Relevant skills, experience and contribution | | Relevant skills, experience and contribution | | Relevant skills, experience and contribution | | | s In-depth knowledge of the UK | | s Strong nancial services background. | | s Deep expertise in developing and | | | | insurance market. | s Sizable insurance industry | | | implementing HR strategies across | | s Track record of building sustainable, | | | experience gained within a range | | multiple geographies. | | | protable retail insurance businesses. | | of European territories. | s Signicant experience of global | | performance and reward management, Jon joined Hiscox in 2022 from Allianz UK, where Stéphane originally joined Hiscox as Chief robust talent and succession planning he was Chief Executive Ofcer. He leads our UK Operating Ofcer for Europe, and has since held and HR transformation. | retail insurance business, which spans eight | a number of other senior roles including Group | | | --- | --- | --- | | ofces and over 800 employees and oversees | Chief Information Ofcer, Chief Executive Ofcer | Nicola joined Hiscox in 2022 from ING Group | | the development of our established broker | of Hiscox Europe, Chief Transformation Ofcer | where she held a number of senior HR positions. | | business, as well as our partnerships division | and Interim Chief Executive Ofcer for Hiscox | She leads our team of 95 HR professionals | | and direct-to-consumer offerings. Jon | UK. In his new role, created during 2022, he | around the world and drives the Group’s | | is responsible for building on our long-term | oversees a number of critical Group functions | people strategy as we focus on attracting, | | broker relationships, distinguished brand | including claims, technology, change, property | retaining and developing great people to | | and deep expertise in underwriting and digital | services, procurement and marketing to ensure | support the next phase of the Group’s growth. | | distribution with new capabilities as we | the continued effective and efcient delivery of | This includes oversight of our HR policies and | | continue to drive scale. | core services while also driving process maturity | procedures, employee rewards and benets, | | | and digital transformation. | recruitment, learning and development, and | our approach to remuneration including executive compensation. | Joanne Musselle | | Kathleen Reardon | | | --- | --- | --- | --- | | Group Chief Underwriting Ofcer | | Chief Executive Ofcer, Hiscox Re & ILS | | | Joined Hiscox: April 2002 | | Joined Hiscox: January 2021 | | | Relevant skills, experience and contribution | | Relevant skills, experience and contribution | | | s Considerable underwriting expertise, | | s Extensive experience of building | | | | including experience of managing | | reinsurance businesses throughout | | | underwriting portfolios in our key markets. | | the cycle. | | s Signicant knowledge of Hiscox, | | s In-depth knowledge of the Bermuda | | | | particularly Hiscox Retail, having | | reinsurance market. | worked for the Group for 19 years. Kathleen leads our reinsurance and ILS | Joanne joined Hiscox in 2002 and has held a | business, which operates in London and | | --- | --- | | number of roles across the Group, including | Bermuda. She is responsible for ensuring the | | Head of UK Claims, Chief Underwriting Ofcer | 110-strong team of underwriting, analytics | | for Hiscox UK & Ireland, and Chief Underwriting | and asset manager experts take advantage | | Ofcer for Hiscox Retail. Joanne also sits on | of changing market conditions and seize | | the Board of a number of Hiscox subsidiary | opportunities as they present themselves, as | | companies. Prior to Hiscox, Joanne spent | we continue to build both specialist reinsurance | | almost ten years working in a variety of actuarial, | capability and our position as an expert | | pricing and reserving roles at Axa and Aviva in | alternative capital manager in the ILS space. | both the UK and Asian markets. 77Hiscox Ltd Report and Accounts 2022 ## Q& ## A: with Jon Dye Chief Executive Ofcer, Hiscox UK ## Going places ## Hiscox UK is a well-established retail brand ## with a strong culture and considerable ## expertise, and its opportunities for growth ## are plentiful. > 78 Hiscox Ltd Report and Accounts 2022 79Hiscox Ltd Report and Accounts 2022 Jon Dye joined Hiscox in September 2022 after working in a number of senior roles within the insurance industry, most recently as Chief Executive Ofcer of Allianz UK. He also served as Chair of the ABI between 2019 and 2021. In his new post, he is responsible for leading the next phase of growth for Hiscox’s agship UK retail business. when none of us knew what was just our head on the maximum that you around the corner. Covid was one of can achieve in terms of market share our industry’s biggest challenges for in key products? No. It’s all in our gift. ## Q& lots of reasons, and being the ABI Chair That’s thegreat attraction. Through the as the industry faced those challenges channels we’re already working in, we was such a valuable experience. can do things better and bigger than we ## A: Everybody had different views of do today. with Jon Dye thesameproblem and we really did Chief Executive Ofcer, Hiscox UK have to work together to navigate Q: Presumably, your relationship through it. with brokers will be vital to that growth. How is that relationship | | Q: What was your impression of | changing as technology evolves? | | --- | --- | --- | | | Hiscox from the outside? | A: Technology is important. A lot of | | | A: My impression was that it had | our change budget is pointed at digital | | | managed to build a clearly differentiated | initiatives with brokers. Brokers want us | | | position in the market, which is a | to be easy to deal with, and for smaller, | | | very difcult thing to do in insurance. | more straightforward risks, that’s got | | | There’s no IP in your product, because | to be digital. I think we’ve got a real | | Q: You’ve had a long career in the | it’s there on sale, for all to see. To | opportunity here to steal a bit of a march | | insurance industry. What was it that | differentiate yourself is really quite | on the market and move ourselves into a | | drew you to it initially? | hard, but I think Hiscox has done that | leading position if we invest intelligently. | | A: I’m a law graduate, but I was always | spectacularly well. Good people, | We’re on a journey there and I think quite | | pretty certain that I didn’t want to join | clever products, fantastic claims | an exciting one. | | the legal profession. One of my lecturers | service – that’s what I perceived from | | | said: “If you’re interested in the law and | the outside and that is exactly how it | But in other ways, working with brokers | | you want to change things, don’t be a | is. The culture runs through Hiscox in | is no different to how it was in January | | lawyer, because their role is to follow | a way that is genuinely tangible. Every | 1989, when I started. People trade | | their clients’ instructions. What you | business says it’s customer-centric, | with people they know and trust. And | | need to do is work for one of the | every business says it’s entrepreneurial, | that works all the way up and down the | | compensators”. That means basically | but living up to that can be quite hard. | business. It’s a partnership and our | | the insurance industry and the | If you haven’t got that culture, creating | success depends on our ability to build | | government. You hear lots of senior | it is really difcult. And if you have got it, | and leverage those relationships. One | | people say: “I fell into insurance. It was | wow – that’s a great advantage! | of the big advantages at Hiscox is that | | an accident”. I didn’t fall into insurance. | | we’ve got a very at structure. Brokers | | I chose to come to insurance because | Q: What attracted you to this | can easily get to the decision-makers | | I thought it was a fascinating and | particular role? | who are executing on the strategies that | | important business, which it is. | A: It’s an opportunity to grow not just | we’ve laid down. We’re actually looking | | | the business, but also my own skills and | to devolve even more decision-making | | Q: As well as several Chief Executive | experiences. We have an energetic new | to frontline specialists, allowing them to | | Ofcer roles, you’ve also had a | Group Chief Executive Ofcer who has | deliver at pace and in this market that’s | | recent stint as Chair of the | big ambitions for us, who wants to see | quite unusual. | | Association of British Insurers | the UK retail operation move forward | | | (ABI). What did you take from | and is prepared to put money into that | Q: What do you think your priorities | | that experience? | in terms of brand investment, change | will be in the coming year? | | A: I took a huge amount from that role | investment and broad support for what | A: We’re known in the market for our | | and it was all in the timing. I was | we’re trying to do. There’s no issue in | strong underwriting talent and we’ll | | appointed in the summer of 2019, | terms of headroom. Are we banging | continue to strengthen and build this | 80 Hiscox Ltd Report and Accounts 2022 The launch of our new Hiscox Underwriting Academy is going to be important as it will enhance our ability to grow and train our own talent. We’ll continue to recruit market experts where appropriate, particularly those with specialist expertise in protable growth segments.” core capability. The launch of our new because there are lots and lots of Hiscox Underwriting Academy is going them. So that’s what makes me most to be important as it will enhance our optimistic. The fundamentals of this ability to grow and train our own talent. business offer a brilliant foundation on We have an energetic new Group We’ll continue to recruit market experts which we can build a bigger and better Chief Executive Ofcer who has big where appropriate, particularly those business, and that’s what I intend to do. ambitions for us, who wants to see the with specialist expertise in protable UK retail operation move forward and growthsegments. Q: Outside of work, what gives is prepared to put money into that in you energy? terms of brand investment, change We’ll also be investing in technology – A: I play squash. I whack a little rubber investment and broad support for that’s really important. As well as ball around a room and burn a lot of what we’re trying to do. There’s no building our digital trading capability, energy in a short space of time. And it’s issue in terms of headroom.” we also need to simplify and digitise our great. Hiscox is actually very good at own processes and automate simple encouraging people to take a break, do tasks. And we’re investing in technology some exercise or just get out in the fresh to improve the customer journey – air, so when I do get the opportunity to we need to ensure our people have have a lunchtime game I nd that I come all the tools they need to exceed back to work feeling revived and ready customer expectations. to go again. Q: How important is it to have a high-performing claims service? A: I spent the rst 18 years of my career working in claims, and for me it’s the moment of truth in our industry. People buy a promise, and they only know if it was a good purchase or a bad purchase when they need to make a claim. Seeing customers as people rather than numbers is absolutely vital and it’s something that Hiscox is famously brilliant at. Our claims service is genuinely a major differentiator – we continue to deliver a superb service, with really strong customer satisfaction. Q: What have you seen so far at Hiscox that makes you optimistic about the future? A: I think the fundamentals of the business are completely solid. The unique culture, the differentiated brand, the great people, the clever products, that’s all there. It’s actually been quite helpful to have someone come in from the outside and point out some of the things that we’re really good at, 81Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | ## Chairman’s letter to shareholders | Dear Shareholder | successor. An update on this search | Pragmatism in ESG | | --- | --- | --- | | 2022 has been another year of focus | and on the succession process will be | The accountability and oversight | | when it comes to ensuring we have | provided to the market in due course. | structures we have established for ESG | | robust governance arrangements that | | continue to drive healthy debate on | | are equipped to manage not only the | Embedding the new Group | our role in the transition to a net-zero | | risks we face but also the opportunities. | Executive Committee | economy (see page 60). We take a | | The corporate governance report that | During his rst year as Group Chief | pragmatic approach to ESG, including | | follows will cover the detail of what this | Executive Ofcer, Aki has established | climate-related issues, which can be | | encompasses at Hiscox, but below are | a Group Executive Committee with | seen not only in the progress we are | | some key points from the year. | a combination of business unit and | making to reduce our exposure to | | | functional expertise, institutional | some of the worst carbon emitters as we | | Board changes | knowledge and fresh thinking. This | adapt to our ESG exclusions policy, but | | Caroline Foulger stepped down from the | team of our most senior leaders has | also in our work with clients to ensure an | | Board in May, following the conclusion of | worked collaboratively and effectively | orderly transition. We also recognise the | | her nine-year term. Pleasingly, we have | over the course of the year to deliver | importance of comparable disclosures, | | experienced a smooth transition from | strong progress against our 2022 | which is why we continue to contribute | | Caroline to Donna DeMaio, who not | business priorities, particularly when | to a range of independent indices, and | | only serves as an Independent Non | it comes to building connected teams | this year we were particularly pleased | | Executive Director on the Board but | with shared values and mindset, which | to see our MSCI ESG rating upgraded | | also as Audit Committee Chair. I would | is reected in our best employee | from an A to an AA. Our second year of | | like to thank Caroline for her counsel | engagement scores for ten years | TCFD disclosure, in line with the FCA | | and constructive challenge over the | (see page 3). | requirements, can be found on pages | | years, which I have personally valued | | 60 to 67. | | immensely and which the business | Listening to our people | | | has signicantly benetted from. | We are now in the fourth year of our | I trust that the information set out | | | Employee Engagement Network, led | in this report will give you a strong | | In addition, Paul Cooper joined the | by Independent Non Executive Director | understanding of our corporate | | Board as well as the Group Executive | Anne MacDonald in her capacity | governance arrangements and | | Committee in May, following his | as Employee Liaison. This network | assurance that Hiscox continues | | appointment as the Group’s Chief | comprises a representative group of | to be focused on the importance | | Financial Ofcer. Paul has over 25years | colleagues, with diversity of geography, | of maintaining a robust corporate | | of nancial services experience, | business area, age, race and tenure, and | governance framework. | | including across both the retail and | meets twice yearly, with anonymised | | | Lloyd’s insurance markets, and joined | insights reported back to the Board. | Robert Childs | | with strong knowledge of the Group – | | Chairman | | having served as Finance Director | These are rich discussions, which in | | | for Hiscox UK and Europe from | 2022 have included rewards and | | | 2006 to 2011 during a key phase of | benets, hybrid working, ESG, feedback | | | growth. We are benetting immensely | for Aki in his new role, and what our | | | from his experience and insights. | people want to see from new Group | | Executive Committee members. As | As we announced with our 2022 results, | a result, the views of our people have | | --- | --- | | I will be stepping down as Chairman | constructively helped to shape Board | | during 2023 following 37 years of | discussions, for example around | | service to the Group, including ten | employee engagement as we review | | years as Chairman, and the Board | and rene our employee proposition, | | has commenced the search for my | and our approach to hybrid working. | 82 Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | 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 Board and | online and available to view at | | governance framework includes the | 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 | The Board is satised that the internal | | the governance requirements for the | model (available at hiscoxgroup.com/ | control and risk management systems | | Group are robust and t for purpose. | investors/corporate-governance). | relating to the nancial reporting process | | As a company listed on the London | | are strong, with the Audit Committee and | | Stock Exchange, the UK Corporate | The model shows the relationship | the Risk Committee forming the central | | Governance Code (the Code) is | between the Board exercising strategic | points of review and challenge. Further | | applicable to Hiscox, and an overview | direction and oversight of the Hiscox | detail can be found in the Audit Committee | | of the Company’s compliance with the | Group, and the subsidiary boards’ | report on pages 99 to 101 and in the risk | | Code is detailed on pages 88 to 93. | delivery of their respective entity’s | management section on pages 44 to 47. | responsibilities. This is further detailed | The Board has a formal schedule | in 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 ows | whistleblowing policy is designed | | acquisitions and divestments; risk | and collaboration between Group | to ensure that the workforce feel | | oversight and setting the Group’s risk | and the principal subsidiaries are also | empowered to raise concerns in | | appetite; and reviewing the Group’s | delivered by Board Non Executive and | condence and without fear of unfair | | governance. The Group governance | Executive Director representation on | treatment. The structures and processes | | manual (the Manual) details the wider | the boards of the principal insurance | in place allow for the proportionate and | | corporate governance framework | carrier entities. | independent investigation of any such | | including the overall legal entity | | matters, and for appropriate follow-up | | structures and relationship with | The Executive’s internal governance | action to be taken where necessary. | | the business units, the division of | structures support decision-making | | | responsibilities between Group and | at the Executive level between the | Board composition | | principal subsidiary boards, Board | Group Executive Committee, the | The Board has responsibility for the | | process and procedures for issues | business units and the functional | overall leadership of the Group and its | | such as Non Executive Director | departments. Membership of the Group | culture. The operations of the Board | | appointments, diversity requirements | Executive Committee was refreshed | are underpinned by the collective | | and Board evaluations, and the principles | in January 2022 following a review of | experience of the Directors and the | | to be applied to the wider subsidiary | existing leadership structures by the | diverse skills which they bring. The Board | | management. The Manual is approved | incoming Group Chief Executive Ofcer, | comprises the Non Executive Chairman, | | by the Board and regularly reviewed. | and the resulting Group Executive | three Executive Directors, and seven | | The Company also benets from a | Committee members are detailed on | independent Non Executive Directors | | strong governance framework at a | pages 76 to 77. | including a Senior Independent Director. | 83Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | Corporate governance | | information | summary | | Notable changes in the reporting | details on Board composition and | their duties. Where Directors accepted | | --- | --- | --- | | period include the appointment of | succession planning can be found | additional Board positions during the | | Paul Cooper as Group Chief Financial | in the Nominations and Governance | year, these were reviewed as part of our | | Ofcer, effective 9 May 2022, and | Committee report on pages 94 to 98. | corporate governance processes and | | Donna DeMaio’s appointment as | | were not deemed to be signicant to the | | Audit Committee Chair, following the | Board independence and | extent that they would overburden that | | retirement of Caroline Foulger at the | Director duties | Director’s time. Approval occurs prior | | AGM in 2022, after the conclusion of | The Nominations and Governance | to a Director undertaking additional | | her nine-year term with the Company. | Committee reviews the independence | external appointments. | | Biographical details for each member | of each Non Executive Director, taking | | | ofthe Board are provided on pages | into account, among other things, the | Onboarding and Board training | | 72 to 73. | circumstances set out in the Code | On joining the Board, all Non Executive | | | that are likely to impair, or could appear | Directors take part in a full, formal | | In accordance with the Company’s | to impair, their independence. The | induction programme which is tailored | | Bye-laws and the Code, all Directors | Committee remains of the view that the | to their specic requirements. More | | will seek appointment or re-appointment | most important factor is the extent to | information on this can be found in | | (as applicable) at the 2023 Annual | which they are independent of mind. | the Nominations and Governance | | General Meeting. No issues have arisen | | Committee report on pages 94 to 98. | | that would prevent the Chairman from | Each Director has undertaken to | | | recommending the re-appointment | allocate sufcient time to the Group in | The Board also has an ongoing training | | of any individual Director. In addition, | order to discharge their responsibilities | programme with regular items on topical | | the Senior Independent Director has | effectively. Each Non Executive | issues. In 2022, this included, among | | reviewed the position of the Chairman | Director’s letter of appointment outlines | other things: sessions on ESG horizon | | with the Non Executive Directors, and | the commitments expected of them | scanning; the impact of IFRS 17; strategic | | recommends the re-appointment | throughout the year and this is further | planning; redening our employment | | of Robert Childs, conrming that | detailed in the Manual. Executive | proposition; workforce engagement; | | the Chairman continues to show | Directors are prohibited from taking | information security strategy; and | | the independence of character and | more than one additional non executive | control environment training. Items | | judgement necessary to chair the | directorship in a FTSE 100 company. | for training are identied in the Board, | | Board effectively. This will be the last | Each year, as part of the Director review | Committee and Director reviews, as well | | time Robert will seek reappointment, | process, the Directors are required to | as through specic requirements and | | having announced with the Group’s | provide a complete list of all third-party | individual requests, and can be delivered | | 2022 results that he will step down | relationships that they maintain. This | via the frequent programme of Board | | as Chairman during 2023 following | is analysed to determine if there is any | informational sessions. | | 37 years of service to the Group, | actual or potential conict of interest and | | | including ten years as Chairman. The | that appropriate time continues to be | Board structure and decision-making | | search for a successor is underway | available to devote to the Company. | The Board operates within an | | and an update will be provided to the | The Nominations and Governance | established structure which ensures | | market in due course. | Committee reviews the ndings and | clear responsibilities at Board level, | | | determines if there is any conict of | transparent, well-informed and balanced | | The Board is satised that it has the | interest. The Committee determined that | decision-making, and appropriate | | appropriate balance of skills, experience, | there were no relationships which could | onward delegations to effectively | | independence, and knowledge of the | cause an actual or potential conict. | deliver the Company’s purpose, | | Company to enable it to discharge its | | values and strategy. | | duties and responsibilities effectively, | Additionally, there were no concerns | | | and that no individual or group dominates | regarding overboarding and all Directors | The Board has delegated a number of its | | the Board’s decision-making. Additional | had adequate time available to carry out | responsibilities to its Audit, Nominations | 84 Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | Corporate governance | | information | summary | | and Governance, Remuneration and Risk | At each meeting, the Board receives | Executive Directors with support and | | --- | --- | --- | | Committees. Each Board Committee | an update from the Committee Chairs | guidance, not just challenge, and our | | operates within established written terms | to keep them abreast of the items | Non Executive Directors are close | | of reference and each committee Chair | discussed, the outcomes agreed, and | enough to the business to do this. | | reports directly to the Board. The formal | to summarise recommendations for | | | schedule of matters reserved for Board | Board approval from the Committees. | Board attendance in 2022 | | decision and the Committee terms of | | In line with the agreed meeting schedule, | | reference were reviewed in late 2022 | 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 2022 (these meetings | | reference, and copies of each can be | from the Board’s annual plan of business, | comprise meetings of the Board and | | found at hiscoxgroup.com/investors/ | with exibility built in to ensure the | of each of the Committees of the | | corporate-governance. To ensure | agendas can accommodate relevant | Board). In keeping with the practices | | that the Board operates efciently, | upcoming issues. Each quarterly cycle | developed during the early stages of | | the role of the Chairman, Senior | typically covers a series of decisions, | the pandemic, there were an additional | | Independent Director and Chief | discussions and regulatory items | seven informational calls between Board | | Executive are distinct to demonstrate | either at the Board, during Committee | meetings. These informational calls | | the segregation of responsibilities. | discussions, or during informal | provided an opportunity to ensure the | | | informational sessions, depending | Board was kept informed of any business | | Board cycle | on the nature of the matter. Items for | developments and allowed the Directors | | The Board receives appropriate and | discussion may be identied from | to monitor exposures, emerging issues | | timely information to enable Directors | actions from previous meetings, issues | and opportunities. | | to review business strategy, trading | escalated from management, items | | | performance, business risks and | requested either formally or informally | The Company’s Bye-laws prohibit any | | opportunities. Executive Directors and | by Non Executive Directors, ongoing | Director who is in the UK or the USA | | senior management from the business | regulatory topics throughout the | from counting towards the quorum | | are invited to present on key items, | Group, and horizon scanning including | necessary for the transaction of business | | allowing the Board the opportunity to | review of the competitive landscape. | at a Board meeting. This restricts the | | debate and challenge initiatives and | Agendas are built to ensure that the most | ability of the Company’s Directors | | proposals directly. | appropriate method of progressing an | based in the UK or USA to participate in | | | item is utilised. The Chairman and Non | Board meetings by telephone or other | | The Board agenda is set by the Chairman | Executive Directors usually meet at | electronic means. | | following discussion with the Group | the start or end of each Board meeting | | | Chief Executive Ofcer and Company | without the Executive Directors, creating | All Directors were able to full their | | Secretary, and taking into consideration | an opportunity for Non Executive | duciary responsibilities during 2022 | | feedback from the individual Directors. | Directors to raise any issues privately. | and attended all Board and Committee | | Board agendas focus on strategically | Owing to this system, the Group has an | meetings that they were eligible to | | important issues, key regulatory items | effective Board which supports a culture | attend (that is, those Board and | | and regular reports from key business | of accountability, transparency and | Committee meetings that they were | | areas. Board papers are circulated in | openness. Executive and Non Executive | not precluded from attending as a | | advance of each meeting to ensure | Directors continue to work well together | result of the Company’s Bye-laws). | | Directors have appropriate time to | as a unitary Board and debate issues | With respect to the four comprehensive | | review them, and to seek clarication | freely. The Board culture is congenial; | Board meetings in 2022, the Directors’ | | where necessary. The management | however, both Non Executive Directors | attendance (and the number of meetings | | reports follow a short standard | and Executive Directors continually | that they were eligible to attend) was | | format which aids discussion and | challenge each other in order to deliver | as follows: Robert Childs, Michael | | understanding. The quality of Board | our shared aim. In the context of unitary | Goodwin, Thomas Huerlimann, Colin | | papers is kept under regular review. | Boards, Non Executive Directors provide | Keogh, Anne MacDonald, Costas | 85Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | Corporate governance | | information | summary | Board engagement with stakeholders A key element of the corporate governance framework is open and transparent communication with stakeholders at all levels including Board level. As such, the Board regularly discusses stakeholder matters including shareholder matters, employee engagement, customers, and the Group’s impact on, and relationship with, wider society. The Board is kept abreast of stakeholder feedback and issues through reports from a variety of sources, including the Chairman, Group Chief Executive Ofcer, Group Chief Financial Ofcer, Employee Liaison, senior management and external consultants. This feedback loop is | Miranthis, Lynn Pike, Joanne Musselle, | opportunity to attend briengs with | | complemented by the regular dialogue | | --- | --- | --- | --- | | Aki Hussain (4/4); Paul Cooper (3/3); | Group Executive Committee members | | that the Board maintains with the Group’s | | and Donna DeMaio (2/3). In November | and senior management, to understand | | key stakeholders, with the support of | | 2022, Donna DeMaio was involved in a | key issues and conduct deep dives on | | Executives and senior management. | | medical emergency which prevented | specialist subjects. | | | | her from attending the November Board | | | The chair of each Committee of the | | meeting. The Deputy Chair of the Audit | Board activity in 2022 | | Board is available for engagement with | | Committee, Thomas Huerlimann, fullled | Board activity in 2022 was suitably | | shareholders when required and an | | her responsibilities for the meeting. | focused to ensure it covered the | | example of this during 2022, in relation | | | appropriate strategy, performance | | to our remuneration policy review, can | | There were also four meetings of each | and governance items and considered | | be found on page 132. | | of the Committees of the Board during | the needs and concerns of our key | | | | 2022. All of the Company’s Independent | stakeholders. This included: | | More information on how the Board | | Non Executive Directors are members | • strategy and business | | engages with key stakeholders can | | of each of the Audit Committee, | | performance, including approval | be found on pages 48 to 49. | | Nominations and Governance | | of the 2023 business plan, the | | | Committee, Remuneration Committee, | | agreement of business priorities | Board evaluation 2022 | | Risk Committee and Investment | | for the year ahead, oversight of | The Board encourages a culture of | | Committee and their attendance | | capital management measures | continuous improvement, and an important | | (and the number of meetings that they | | taken (including legacy portfolio | part of this is the annual review of the | | were eligible to attend) was as follows: | | transactions and debt renancing), | Board, its Committees and each Director. | | Michael Goodwin, Thomas Huerlimann, | | embedding the Group’s strategic | The Board evaluation in 2022 was internally | | Colin Keogh, Anne MacDonald, Costas | | evolution, and further optimising | facilitated, the details of which can be | | Miranthis, Lynn Pike (4/4); and Donna | | operational effectiveness; | found in the Nominations and Governance | | DeMaio (2/3, for the same reason as | • culture and engagement, | | Committee report on pages 94 to 98. | | described above). Robert Childs is | | including reviewing the annual | | | a member of the Nominations and | | employee engagement survey, | Board remuneration | | Governance Committee, Risk Committee | | oversight of the employee | The remuneration of Independent Non | | and Investment Committee and he | | proposition work done to date, | Executive Directors is determined by | | attended all four of the meetings that he | | and gaining new insights from | the Nominations and Governance | | was eligible to attend. Aki Hussain and | | the Employee Engagement | Committee and is regularly benchmarked | | Joanne Musselle are members of the | | Network facilitated by the | to ensure it reects the time commitment | | Investment Committee and attended | | Board’s Employee Liaison; | and responsibilities of each role; there are | | all four meetings. Paul Cooper is also a | • governance, including updates | | no performance-related elements. The | | member of the Investment Committee | | on key underwriting exposures, | Chairman’s remuneration is determined | | and attended the three meetings he | | and approval of the updated risk | pursuant to the remuneration policy. | | was eligible to attend. | | limits framework; | | | | • oversight of all key risks, | | More information on Board remuneration | | Outside of the formal Board and | | compliance, internal controls and | can be found in the remuneration section | | Committee meetings and informational | | governance matters, as outlined | on pages 106 to 143. | | calls, Non Executive Directors have | | on pages 44 to 46, 94 to 98 and | | | unfettered access to employees at | | 99 to 101. | | all levels of the business, regularly | liaise with management on activities | More information on Board activities | | --- | --- | | aligned to their key skills, and attend | is covered as part of the annual Board | | appropriate management strategy | evaluation process outlined on pages | | and training events. They also have the | 97 to 98. | 86 Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | 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 sufciency of capital in light of the Group’s risk prole and business plans; • approve the business plans and budgets. This structure is supported by the Group Executive Committee, Investment Committee and a number of other management committees. Certain administrative matters have been delegated to a committee comprising two Directors and the Company Secretary. Audit Committee Nominations and Remuneration Committee Risk Committee Governance Committee | • Advises the Board on | | • Recommends Board | | • Establishes | | • Advises the Board on | | | --- | --- | --- | --- | --- | --- | --- | --- | | | nancial 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 | | | conicts of interests. | • Oversees workforce | | | | | can be found on pages 99 | | | | | remuneration-related | More information on risk | | | to 101. | | The Nominations and | | | policies and practices | management can be found | | | | | Governance Committee | | | across the Group. | on pages 8 to 11 and 44 to 47. | | report can be found on pages 94 to 98. The remuneration report can be found on pages 112 to 121. To ensure that the Board operates efciently, 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 operational and performance evaluation to be resolved through nancial performance. and identifying any normal channels, • Representing Hiscox action required. or if contact through internally and externally • Leading initiatives to these channels is to stakeholders, assess the culture of the deemed inappropriate. including shareholders, Company and ensure employees, government that the Board leads and regulators, suppliers by example. and contractors. 87Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | 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 | experience and expertise in underwriting | the results of which were positive. This | | --- | --- | --- | | Stock Exchange, the UK Corporate | and risk management remain a valuable | will also be a focus again in the 2023 | | Governance Code (the Code) is | asset in the performance of its functions. | externally facilitated Board evaluation. | | applicable to Hiscox. The Board is | | A similarly positive result was found in | | pleased to report that the Company has | In 2019, following the introduction of | the 2021 and 2022 Board evaluations | | applied the principles and complied | the new provision of the Code, a more | as detailed on pages 97 to 98. The Board | | with all its provisions, except in relation | robust annual process was introduced | therefore retains complete condence in | | to Provision 9 on Chair independence; | which allows the question of the | the Chair’s ability to act independently, | | Provision 19 on Chair tenure (as explained | Chairman’s independence and Board | and unanimously supports his re-election | | below) and part of Provision 25 regarding | tenure to be discussed in a specic | at the AGM. This will be the last time | | the Chairman’s membership of the | session with the Non Executive Directors | the Chair will seek reappointment, | | Risk Committee. | (without the Chairman being present). | having announced with the Group’s | | | This process is led by the Senior | 2022 results that he will step down as | | The corporate governance statement | Independent Director. The meeting | Chairman during 2023, following 37 | | (pages 83 to 87), the remuneration report | took place in November 2022 and, | years of service to the Group including | | (pages 112 to 131) and the Directors’ | having also considered the views of | ten years as Chairman. The search | | report (pages 148 to 151), together with | the Executive Directors, the meeting | for a successor is underway and an | | the cross references to other relevant | determined that the Directors continue | update will be provided to the market | | sections of the Annual Report and | to highly value the Chair’s skills and | in due course. | | Accounts, explain the main aspects of | experience, and that he demonstrates | | | the Company’s corporate governance | independence, constructive challenge | The Company complies with all of | | framework and seek to give a greater | and engagement in the Board, as | the provisions in Section 3 (audit, risk | | understanding as to how the Company | well as valuable guidance to senior | and internal control) except for part of | | has applied the principles and reported | management. The Board is therefore | Provision 25. The role and functions | | against the provisions of the Code. The | satised that the Chair continues to | of the Audit Committee are set out in | | Code itself can be found at frc.org.uk. | show the independence of character | Section 3 of the Code. This includes | | | and judgement necessary to chair the | certain risk-related responsibilities. | | Chair independence and tenure | Board effectively in this, his nal year | These risk-related responsibilities | | The Company complied with all of the | as Chair. | are undertaken by the separate Risk | | provisions of Section 2 with the exception | | Committee at Hiscox. The composition | | of Provision 9 and 19 regarding Chair | Separately, there are a number of further | of the Risk Committee does not comply | | independence and tenure respectively. | measures to ensure the robustness of | with Provision 25 of the Code, which | | As previously disclosed, the Chair, | these arrangements including: a strong | states that the Audit Committee should | | Robert Childs, was not deemed to be | Senior Independent Director in place; | comprise Independent Non Executive | | independent upon his appointment | an annual review of independence of | Directors and that the Chair should not | | as Chairman in 2013. The Chairman | mind as part of the effectiveness review, | be a member of the Audit Committee. | | has been in post since 2013 and as | and oversight of this at the Nominations | This is because the Chairman sits on the | | announced with the Group’s 2022 | and Governance Committee; the Chair | Risk Committee. However, the Board | | results, will step down as Chair during | is not a member of the Remuneration | considers the Chairman’s expertise | | 2023. Prior to 2013, the Chair served as | Committee or the Audit Committee; | in underwriting and risk management | | an Executive Director (Chief Underwriting | and a majority of Board Directors are | remains a valuable asset and the | | Ofcer for the Group) and, as such at the | independent Directors. A key focus of | Chairman is a valuable member of this | | time of appointment major shareholders | the 2020 externally facilitated Board | Committee because of the insight he | | were consulted ahead of the Chair | evaluation was an assessment of the | brings, which the Board considers to | | appointment and the Board set out its | independence of the Board, the role of | be benecial to that Committee. | | reasons for his appointment. The Board | the Chairman and the robustness of the | | | continues to believe that the Chairman’s | Non Executive Director succession plan; | | 88 Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | 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 24 to pages 44 to 47 applied all of the Board leadership 37 demonstrate the Company’s strong performance and position. In the (risk management), principles and and Company corporate governance overview on pages 83 to 87, we detail the governance pages 6 to 7 complied with purpose arrangements in place which contribute to the delivery of our 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 page 86 Provision 5 refers to strategy, and satisfy itself that these and its culture are aligned. All directors (Board activity), Section 172 of the UK must act with integrity, lead by example and promote the desired culture. pages 106 to 143 Companies Act which Hiscox: Having a clear purpose and strong set of values has always been (chapter 4, is not applicable to important at Hiscox as they act as a culture barometer by which the Board remuneration). Hiscox as a Bermuda- and wider workforce can hold each other to account (see pages 2 to 3). incorporated Procedures for regulation of Board conduct are detailed in the Group Provision 3: company. However, governance manual and individual appointment letters, and is overseen pages 48 to 49 the material provisions by the Chair of the Board. (shareholder of Section 172 of the engagement). UK Companies Act are C: Resources and controls substantively covered Code: The board should ensure that the necessary resources are in Provision 4: by the Bermuda place for the company to meet its objectives and measure performance No AGM votes Companies Act, which against them. The board should also establish a framework of prudent below 80%. is the applicable and effective controls, which enable risk to be assessed and managed. legislation that the Hiscox: One of the key roles of the Board is to oversee the delivery of Provision 5: Company is required strategy and annual operating plans, holding management to account on pages 48 to 49 to comply with their delivery of those plans. This is assisted by a robust internal control (stakeholder under Bermuda law. and risk management framework (see pages 44 to 46). The Board and engagement), Compliance against its Committees have unfettered access to the resources they deem page 86 Bermudian Director necessary to full their obligations. (Board activity). duties is detailed on page 74. D: Stakeholder engagement Provision 6: Code: In order for the company to meet its responsibilities to shareholders page 83 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, examples of which can be found on pages 48 to 49. pages 83 to 86 The Board continues to engage with the workforce through the (Non Executive pre-existing infrastructure and via the employee engagement network. Director time, This ensures Hiscox is motivating and engaging employees in an corporate effective way. The Employee Liaison is responsible for providing a governance summary of ndings at Board meetings. framework). 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 2022 results can be found on page 3. The Board also engages with the workforce through its established employee engagement network, which supports the pre-existing engagement infrastructure. 89Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | 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. page 88 (Chair applied all of the Division of Hiscox: The Chair is responsible for the leadership and overall effectiveness independence principles and responsibilities of the Board. The Chair drives a boardroom culture which encourages and tenure), complied with openness and debate and ensures constructive relations between Executive page 87 the provisions of and Non Executive Directors, see Board cycle on page 85. The Chair, (CEO and Chair Section 2 except for with the support of the General Counsel and Company Secretary, separate roles). Chair independence delivers high-quality information to the Board to enable a strong basis within Provision 9 for decision-making. Pages 83 to 86 detail the corporate governance Provision 10: (see page 88). structures in place. page 72 to 73 (Board of Directors). G: Composition of the Board Code: The board should include an appropriate combination of executive Provision 11: and non-executive (and, in particular, independent non-executive) page 72 to 73 directors, such that no one individual or small group of individuals (Board composition). dominates the board’s decision-making. There should be a clear division of responsibilities between the leadership of the board and the executive Provision 12: leadership of the company’s business. page 72 to 73 Hiscox: There is a clear division of responsibilities between the Chair, (Board composition), Chief Executive Ofcer and Senior Independent Director (see page 87). page 97 to 98 No individual or small group has unfettered powers of decision. The Board (Board evaluation). has a majority of independent Directors. Provision 13: H: Role of Non Executive Directors page 85 Code: Non-executive directors should have sufcient time to meet their (Board cycle). board responsibilities. They should provide constructive challenge, strategic guidance, offer specialist advice and hold management to account. Provision 14: Hiscox: The Group governance manual and the Directors’ letters of page 87 appointment detail the requirements for the Non Executive Directors (structure of Board regarding their role and time expectations. These factors are subject decision-making), to ongoing review, which is overseen by the Chair of the Board, and page 85 to 86 is formally reviewed in the annual Director reviews conducted by the (Board attendance Nominations and Governance Committee (see page 94). The duties of the in 2022). 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 Provisions 15 and 16: and removing Executive Directors. The Matters reserved for the Board is Group governance available in the Board terms of reference at hiscoxgroup.com/investors/ manual and Director corporate-governance. appointment letters. 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 efciently. 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. 90 Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | 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. pages 94 to 98 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 88). | | hiscoxgroup.com/investors/corporate-governance. | pages 72 to 73 | | (Board composition). The Board diversity and inclusion policy is detailed on pages 95 to 97. It details the parameters for appointments and succession planning, as Provision 19: well as oversight of Board and workforce diversity and inclusion policies See explanation above and programmes. The Nominations and Governance Committee leads on (Chair independence the delivery of this principle on behalf of the Board as detailed on pages and tenure). 94 to 98. Provision 20: K: Skills, experience and knowledge of the Board pages 94 to 98 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 72 to 73 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 94 to 98 of the Board as detailed on pages 94 to 98. (Board evaluation, Nominations L: Board evaluation and Governance Code: Annual evaluation of the board should consider its composition, Committee report). diversity and how effectively members work together to achieve objectives. Individual evaluation should demonstrate whether each Provision 23: director continues to contribute effectively. pages 94 to 98 Hiscox: The Board, Committee and Director evaluation process is a (Nominations robust annual process which ensures that a thorough evaluation is and Governance completed each year. This internal evaluation process is supported by Committee report). external evaluations, which are completed every three years, with the next external review scheduled for 2023 (see pages 97 to 98). 91Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | 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 nancial 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 99 to 101 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 | nancial statements, with external audit also providing assurances in | Provision 25: | of Section 4, except | | --- | --- | --- | | relation to the narrative statements. The Audit Committee report for | Audit Committee | for part of Provision 25 | | 2022 can be found on pages 99 to 101. | terms of reference | as 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 148 to 151. | 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 99 to 101. Provisions 27, 30 O: Risk management and internal control framework and 31: Code: The board should establish procedures to manage risk, oversee pages 148 to 150 the internal control framework, and determine the nature and extent of (going concern and the principal risks the company is willing to take in order to achieve its viability statements, long-term strategic objectives. Directors’ report). Hiscox: The Board is ultimately responsible for our risk management and internal controls, and for ensuring that the systems in place are robust and Provisions 28, 29 take into account the principal risks (referred to in this document as key and 31: risks) and the emerging risks faced by the Company. An overview of risk pages 44 to 47 management can be found on pages 44 to 47. The Risk Committee leads (risk management). detailed discussions on the principal and emerging risks of the Company on behalf of the Board, and recommends to the Board the appropriate risk management framework including risk limits, appetite and tolerances. The Risk Committee also oversees the independence and effectiveness of the risk and compliance functions. 92 Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | 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 106 to 109 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, the Remuneration the provisions while also being aligned with the Company’s purpose, values, culture Committee). of Section 5. and vision (see pages 2 to 3). Provision 34: Q: Executive remuneration pages 119 and 125 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 page 126 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. remuneration). The 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 128). 38, 39: pages 132 to 143 The remuneration policy was reviewed during 2022 and is being put to a (remuneration policy). shareholder vote at the May 2023 AGM. Changes are being proposed to reward the delivery of Hiscox’s wider strategy by introducing a scorecard Provisions 40 and 41: approach to the short- and long-term incentives. Bonus deferral and pages 106 to 143 post-employment shareholding guidelines are being further aligned with (chapter 4: market practice and the circumstances that may trigger use of malus and remuneration). clawback have been extended. Major shareholders’ views on proposed changes to the policy were sought and they have indicated broad support for the approach. The Employee Liaison facilitates discussion with respect to the content of the remuneration policy and how this aligns to wider Company pay policy, and shares feedback on this with the Board. R: Remuneration outcomes and independent judgement Code: Directors should exercise independent judgement and discretion when authorising remuneration outcomes, taking account of company and individual performance, and wider circumstances. Hiscox: The Remuneration Committee leads on this area of work on behalf of the Board. Details of the composition and the work of the Remuneration Committee are detailed on pages 106 to 143. The Remuneration Committee comprises Independent Non Executive Directors only. The remuneration of Independent Non Executive Directors is determined by the Nominations and Governance Committee and is regularly benchmarked to ensure it reects 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. 93Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | ## Nominations and Governance Committee report Key responsibilities and membership Chief Financial Ofcer and Audit The Nominations and Governance Committee Chair. Committee (the Committee) leads • Review of the Board in the delivery of formal, rigorous evaluation outcomes. and transparent procedures on • Ongoing diversity monitoring of the appointments and succession, ensuring Board and senior management. the development of a diverse pipeline of • Consideration around Chairman Board members and senior managers. and Director succession planning. This includes an annual review of succession plans for Executives and Talent reviews Non Executives, a process which The Committee leads on Executive is guided by the appointment and succession planning via an established succession principles set out in the and robust talent review process. Group governance manual for Non As required, the Committee reviews Executive Directors and by our Group key talent plans throughout the Group. HR policies for Executive Directors and The Group review focuses on the senior management. The Committee Group Executive Committee, and also reviews the Board evaluation their direct reports, and the Company process, Company strategy relating to Secretary. The outputs of the talent diversity, equity and inclusion, and the review process contribute to senior ### Succession was a key area gender balance of both the Board and management performance development ### of focus for the Committee senior management. In addition, the plans and include relevant diversity Committee carries out several other actions. This process is replicated ### again in 2022, at both Group activities, including a review of at a business unit level to ensure a ### Executive Director level and intragroup conictsof interest and sufcient pipeline of talent in each ### in relation to key leadership the approval ofGroup policies. area. Talent plans are also reviewed ### positions. The positive when vacancies arise. The Committee is comprised of ### effects of new talent and eight members, of which seven are Board composition and succession ### fresh perspectives are Independent Non Executive Directors. As part of the annual Board succession ### already being felt.” The Chair of the Board is the Chair planning process, the Committee of the Nominations and Governance reviewed the composition of the Board Robert Childs Committee; the Senior Independent in 2022. This included a skills and Chair of the Nominations and Director leads on matters relating to experience review – encompassing Governance Committee the Chair. The Committee’s terms of independence, length of service, reference are reviewed and approved the balance of skills and experience, annually and are available on the diversity, and the capacity required to Company’s website at hiscoxgroup. oversee the delivery of the Company’s com/investors/corporate-governance. strategy – and Board succession planning on an immediate and | Key activities of the Committee: | | longer-term basis for the Chair and | | --- | --- | --- | | The Committee’s key priorities in 2022 | | all members of the Board. The review | | were as follows. | | focused on Non Executive succession | | • Board Director succession, which | | was aligned to the talent reviews for the | | | in 2022 included ensuring a | Executive Directors. Following these | | | smooth transition to a new Group | formal reviews, the Board remains | | | Chief Executive Ofcer, Group | condent that the current skills and | 94 Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | Nominations and | | information | summary | Governance Committee report | expertise are in place to deliver value to | inclusion’. We have a Global Head of | implemented and the results during the | | --- | --- | --- | | the Company and its shareholders. This | DEI and a DEI Executive Sponsor for | reporting period, are set out on page 96. | | formal annual process is augmented by | the Group, who together drive our DEI | | | ongoing open dialogue between the Non | strategy and progress. This includes | We have also fullled our UK obligations | | Executive Directors on succession and | our DEI approach to building culture, | to report our gender pay gap ratios with | | the skills required to deliver the strategy. | the alignment of policies and processes | respect to our UK subsidiaries, and | | | with inclusion principles, building | published our sixth annual gender | | Pages 72 to 73 demonstrate the nature | community and belonging via employee | pay report during the year. This report | | and breadth of each Director’s relevant | networks, and ensuring alignment to | sets out in detail the gender-related | | skills and experience. Additionally, all | credible external DEI commitments. | programmes and initiatives we pursued | | Directors have demonstrated that they | In addition, each business unit Chief | during 2022 and can be viewed at | | have adequate capacity to full their duties. | Executive Ofcer and functional leader | hiscoxgroup.com/gender-pay- | | | has established a DEI action plan which | report-2022. | | As part of the discussions on the | is aligned to our Board-approved global | | | requirements of new Directors, the | DEI strategy and includes aspects such | We voluntarily report our Board and | | Committee determined that the | as recruitment, career development, and | Executive management diversity data | | Company has a strong Board which is | DEI skills and capabilities development. | as at 31 December 2022 in accordance | | sufciently capable to meet the demands | These plans are monitored centrally | with the new UK Listing Rules targets | | of the Group and future strategy. | and also via specic local reports to | and associated disclosure requirements | | | subsidiary boards. This approach is | – see page 59 for further details. | | Diversity, equity and inclusion (DEI) | supported by an annual report on DEI | | | DEI has been a strategic priority for a | which this Committee receives. | As at 31 December 2022, the Board | | number of years and remains critical | | comprised 36% women and there | | to our development as a sustainable | DEI policies, progress and disclosure | was one Director from an ethnic | | and resilient organisation. Hiscox | After we reviewed and updated our | minority background. None of the four | | operates in a global market and the | Board diversity policy in 2021, we built | FCA-specied positions on the Board | | success of our business is dependent | upon this in 2022 by refreshing our Group | (Chairman, Group Chief Executive | | on our people, which is why we want | DEI policy which applies to our entire | Ofcer, Group Chief Financial Ofcer or | | to build a workforce that reects | workforce to more clearly articulate DEI | Senior Independent Director) was held by | | the make-up of our customers, the | governance, refresh our principles and | a woman. However, the UK Listing Rules | | communities we serve, and the | approach to DEI, and align with the Board | targets do not consider other executive | | communities in which we live | DEI policy and other documentation. | roles in the context of these senior Board | | and work, ensuring that we have | This iteration more appropriately reects | positions and one of the three Executive | | employees with different backgrounds, | our intent and strategy and better | Directors on the Board, our Chief | | perspectives and experiences, with | meets the expectations of our industry | Underwriting Ofcer, is a woman. | | a working environment where all our | and marketplace. | | | people can thrive. Our belief is that | | The Board is fully committed to ensuring | | diverse teams and an equitable and | The Hiscox Ltd Board DEI policy and | diversity at all levels of the Group, as | | inclusive workplace are critical to | Group DEI policy are publicly available | evidenced by the existence of both the | | resilience as well as sustainable | on our website at hiscoxgroup.com/ | Board DEI policy and the Group DEI | | growth, which in turn makes us a | about-hiscox/group-policies-and- | policy. The Board continues to work | | stronger partner for our customers. | disclosures. Both reect the ethos of | towards building a pipeline of diverse | | We believe it is important that the name | the Company in advocating that | candidates and this, combined with the | | of the function appropriately reects the | opportunity should be limited only by an | new UK Listing Rules targets, underlines | | intent and work being done, which is | individual’s ability and drive. The specic | the importance of the Company’s efforts | | why in 2022 we evolved from ‘diversity | objectives of the Hiscox Ltd Board DEI | in this area. The Company will continue | | and inclusion’ to ‘diversity, equity and | policy, as well as how they have been | to monitor its progress against these | 95Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | Nominations and | | information | summary | Governance Committee report Board DEI objectives and 2022 progress Board objective Implementation Progress 1. • Annually review the structure, size and Page 75 of the report demonstrates the diversity of Ensure a composition of the Board, including the our Board as at 8March2023. 1 diverse and balance of skills, knowledge and experience to effective Board assist in the development of a diverse pipeline. Via the delivery of our Board diversity, equity and • Annually review Board diversity as part of the inclusion policy, we have: 1 Diversity of gender, Board evaluation process. • maintained a gender balance in line with the social and ethnic backgrounds, • Ensure the values of the Company promote an Davies and Hampton-Alexander reviews cognitive and open and inclusive environment. since 2015 and intend to work towards the personal strengths. current FTSE Women Leaders Review target and UK Listing Rules target for gender balance at Board level; • had one ethnic minority Director since 2016. | 2. | • At least annually review the succession plans | | Each June, the Board and Committee review the | | --- | --- | --- | --- | | Ensure that | | for the Board and senior management and | talent plans for senior management and, each | | all Board | | ensure the talent review process is in place for | November, the Board succession plans. Diversity | | appointments | | the wider workforce. | is taken into account as part of this process. Talent | | are considered | • Gender and ethnic diversity will be taken | | reviews are replicated throughout the business. | | on merit within | | into consideration when evaluating the skills, | | | the context of | | knowledge and experience desirable to ll | | | the strategy | | each role and when considering the methods | | | requirements | | to attract diverse candidates. | | | and diversity | • A search rm will normally be engaged to | | | | considerations | | assist in the review of the market and they | | should be committed to addressing gender and/or ethnicity diversity. • All appointments must be made on merit as aligned to the needs of the Board, the Company, and its strategy and values. 3. • Review the execution of the Group diversity The Committee has an annual report from the 2 Ensure that and inclusion policy . Global Head of DEI. We have a Head of DEI and a the overall • Ongoing Board and Committee review of DEI Executive Sponsor for the Group, who together workforce is matters relating to employee retention, drive our progress which includes a commitment diverse and engagement and culture. from every business unit and functional area inclusive leader to deliver on our employee DEI targets. 2 hiscoxgroup.com/diversity-and-inclusion-policy. These plans are monitored centrally and also via specic local reports to subsidiary boards. The tables on page 59 provide a breakdown of diversity at Hiscox. The Board and Committees receive reports relating to key workforce matters on an ongoing basis, including employee retention, engagement and culture. 96 Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | Nominations and | | information | summary | Governance Committee report | targets over the course of 2023 and will | We will look to build on this good work | oversight of strategy; risk management | | --- | --- | --- | | provide a further update in the 2023 | in 2023 and beyond by strengthening | performance and effectiveness of | | Annual Report and Accounts. | our ability to leverage data and insights, | systems; Board accountability, focus | | | building our DEI skills and capabilities, | and priorities for the coming year; | | Our employee networks (ENs), which | inspiring others with our story, and | Board composition; culture of the Board | | focus on building communities and | embedding DEI into business as usual. | and the broader organisation; Board | | support around a variety of employee | Together, these initiatives will strengthen | and Chair independence, expertise, | | populations, expanded in 2022 to include | the diversity measures we already have | decision-making and dynamics; | | disabilities and neurodiversity. Along with | in place and build the maturity of the DEI | succession planning; Board progress | | our Pan-African, Generations, Latino, | landscape at Hiscox. | on diversity, climate change approach | | Parents and Carers, Pride (LGBT+), | | and digitalisation; communication | | WeMind (mental health), and Women’s | Board evaluation | with shareholders; clarity on purpose, | | ENs, these groups support our DEI | The Board and its Committees have a | direction and values; and Board support. | | strategy by helping to drive positive | culture of continuous improvement and | The format of the evaluation was a | | employee engagement and promoting | as part of this undertake a formal and | condential survey of the Board. This | | a culture of inclusion. | rigorous annual evaluation of Board and | review was completed by all Directors, | | | Committee performance, the results | with the results analysed by the | | We are committed to improving our | of which help to inform action and | Company Secretary, shared with the | | diversity at all levels, to ensure our | development. Board and Committee | Chairman and discussed with the Board. | | workforce reects the customers and | effectiveness evaluations are carried out | | | communities that we serve and the | each year and the results are reviewed | Individual Director reviews are an | | communities where we live and work. | and discussed at the Board and its | opportunity to discuss individual skills, | | In some of the jurisdictions in which | Committees – specically the Nominations | training requirements, succession and | | we operate, current laws mean it is | and Governance Committee, with a | any other issues. Each Non Executive | | not possible to collect ethnicity data | focus on Board composition. | Director completes a self-assessment | | from employees, but where we can we | | form which is followed by a detailed | | encourage employees to self-identify. | 2022 Board and Committee | discussion on performance with the | | In 2022, we expanded the diversity data | effectiveness review | Chairman. The Senior Independent | | we collect in Bermuda, the UK, and | Every third year, the Board evaluation | Director carries out the Chairman’s | | the USA to include more categories | is undertaken by an external evaluator. | review and this supports the annual | | and expand some of the options within | This was last undertaken in 2020 and is | review process of the Chairman. | | the categories for better coverage of | next scheduled for 2023. In the interim | Individual objectives and action plans | | diversity characteristics. Expanding the | years, an internal evaluation is carried | are agreed following each meeting | | categories and options we offer helps us | out which also reviews each Committee, | where appropriate. | | make the invisible more visible, build a | the Board and individual Directors. The | | | more complete picture of our workforce | evaluation also assesses the completion | 2022 Board review outcomes | | (including intersectionality), understand | of the prior year’s actions. Each is | The 2022 Board results demonstrated | | our progress against our strategy, and | addressed in turn below. | continued strong Board, Director, Chair, | | better enables us to make smarter, | | and Committee performance and | | more inclusive programme and policy | 2022 evaluation | re-afrmed the independence of the | | decisions. As such, improving the volume | Building on the work of prior years, | Board, the appropriate leadership | | of voluntary disclosure from employees | the interim year evaluation was carried | provided by the Chair, and the | | remains a focus area and while that | out using our improved evaluation | robustness of the Non Executive Director | | work continues we are pleased to be | process of Board, Committee Chair | succession plans and Executive Director | | disclosing all-employee ethnicity data, | and individual Director performance. | talent reviews. Directors were fully | | as far as we are able to currently, for the | The Board and Committee reviews | engaged with the Board, Committee and | | rst time in this report. | focused on, among other things: Board | Director evaluation process. The review | 97Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | Nominations and | | information | summary | Governance Committee report | was positive with continued robust | | there will be any changes to Board | | • devoted time to considering | | | --- | --- | --- | --- | --- | --- | | decision-making and a Board culture | | composition as a direct result of the | | | changes in the external | | which fosters constructive discussion. | | Board effectiveness review conducted | | | environment and their impact | | | | this year. However, as set out in more | | | on Hiscox, including competitor | | The Board continues to engage in | | detail on page 96, the Board is cognisant | | | activity in key markets, further | | continuous improvements with the | | of its commitment to diversity in all its | | | work on the Company’s strategic | | annual review process being an explicit | | forms and intends to work towards the | | | response to climate change | | point of reection on ongoing actions | | current FTSE Women Leaders Review | | | and further deep dives on social | | and new areas of focus. The Directors | | target and UK Listing Rules target for | | | and governance matters, as | | determined to focus on the following | | gender balance at Board level. | | | well as oversight of the Group’s | | matters in 2023: | | | | | compliance with new accounting | | • people and succession planning | | The Board welcomed the review’s | | | standards (IFRS 17) to understand | | | – further focus on workforce DEI, | conclusions with the feedback directly | | | the business and nancial changes | | | employee engagement, and | linking to ongoing Board developments. | | | required, in addition to peer | | | long-term succession planning for | The Chair owns the response to the | | | positioning; and | | | senior management, Independent | ndings, and will report on their delivery | | • maintained a focus on talent | | | | Non Executive Directors and | in the 2023 Annual Report and Accounts. | | | management, employee | | | the Chairman; | | | | engagement and the retention | | • strategy – continue to review | | 2021 Board effectiveness review – | | | of high performers including | | | iterations of the strategy to further | progress against identied actions | | | further focus on workforce DEI | | | address risk, operations and | The Board and its Committees have | | | and employee engagement. | | | the competitor environment in | made tangible progress against the | | | | | | a fast-changing world; | action points identied during 2022: | | Robert Childs | | | • IFRS 17 – oversight of IFRS 17 | | • focused on the succession of | | Chair of the Nominations and | | | | and understanding the business | | Executive Directors and other key | Governance Committee | | | | changes and peer positioning | | leadership positions as detailed | | | | | on this in addition to the | | in this report, including ensuring a | | | | | nancial changes; | | smooth transition to the new Group | | | | • ESG – further focus on the | | | Chief Executive Ofcer, Group Chief | | | | | development and communication | | Financial Ofcer and Audit Chair; | | | | | of ESG initiatives in line with | • continued the review of the | | | | | | changing expectations and | | Group’s strategy to further | | | | | regulation. This will also include a | | address risk, operations and | | | | | continued focus on the diversity of | | competitor environment in a | | | | | the Board, particularly given that a | | fast-changing world; | | | | | number of Directors will be coming | • continued to drive accountability | | | | | | to the end of their term on the Board | | and excellence in execution, | | | | | over the next three years. | | including the continued monitoring | | | of progress against the Company’s Additional topics for review were business priorities and key projects, identied as part of the Board evaluation and building on new management which will inuence the agendas and information to further increase the training plans for the year. linkage between objective setting and monitoring; In light of the nding that the Board • continued discussions on continues to perform well and function strategy, including business effectively, it is not anticipated that mix and capital allocation; 98 Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | ## Audit Committee report | In relation to nancial reporting, the | | that the external auditor, PwC, displayed | arrived at, to establish these explicit | | --- | --- | --- | --- | | primary role of the Audit Committee (the | | the necessary professional scepticism | loadings. The Committee is satised with | | Committee) is to monitor the integrity | | its role requires. The signicant issues | both the process that was conducted | | of the nancial statements of the Group | | considered by the Committee in relation | and the reporting and disclosure of the | | and any formal announcements relating | | to the 2022 Annual Report and Accounts | resulting estimates. The Chief Actuary | | to the Group’s nancial performance, | | were as follows. | also detailed the remaining insurance | | and review signicant nancial reporting | | | risk given the signicant uncertainty | | judgements contained within them. | | i) Reserving for insurance losses | in future ination rates, however, the | | The Committee meets four times a | | As set out in our signicant accounting | Committee notes that the Group | | year to coincide with key points in | | policies on pages 179 to 180, the | continues to adopt a prudent | | the Company’s nancial calendar. | | reserving for insurance losses is the | approach where uncertainty exists. | | Working with both management and | | most critical estimate in the Company’s | | | the external auditor, the Committee | | consolidated balance sheet. | The Company continues to keep | | reviewed the appropriateness of the | | | Covid-19 losses under review, continually | | interim and annual nancial statements, | | The Chief Actuary presents a quarterly | evaluating loss estimates based on | | concentrating on: | | report to the Committee covering Group | entity-specic historical experience | | s the quality and acceptability of | | loss reserves which discusses both | and contemporaneous developments | | | accounting policies and practices; | the approach taken by management | observed in the wider industry when | | s the clarity of the disclosures | | in arriving at the estimates and the key | relevant. The Committee received | | | and compliance with nancial | judgements within those estimates. The | detailed presentations from the Chief | | | reporting standards and relevant | Committee reviewed and challenged the | Actuary and management relating | | | nancial and governance | key judgements and estimates in valuing | to the latest information and the | | | reporting requirements; | the insurance liabilities. | recommendations arising therefrom. | | s material areas in which signicant | | | The Committee is satised with both | | | judgements and estimates have | During the year, the Group was impacted | the process that was conducted and | | | been applied or where there has | by two major events, Hurricane Ian | the reporting and disclosure of the | | | been discussion with the external | and the Russia/Ukraine conict. It | resulting estimates. While there remains | | | auditor; and | is important that the Company can | uncertainty around the nal cost of these | | s any correspondence from | | quickly, and with a reasonable degree | events to the Group, the Committee | | | third parties in relation to our | of reliability, estimate the gross and net | notes that the Group continues to adopt | | | nancial reporting. | losses arising from these events. The | a prudent approach where uncertainty | | | | Committee received presentations from | exists as to the nal cost of settlement. | | Following the transition of the Committee | | the Chief Actuary and management | | | Chair role to Donna DeMaio in May2022, | | on the process undertaken, and the | The Committee also reviewed the level | | the Committee is comprised of seven | | judgements arrived at, to establish | of margin held within the insurance | | independent Non Executive members. | | these key estimates. The Committee | liabilities in the Group’s balance sheet. | | The Committee has recent and relevant | | is satised with both the process that | Management conrmed that they remain | | nance expertise and competence | | was conducted and the reporting and | satised that the claims reported and | | relevant to the insurance sector. | | disclosure of the resulting estimates. | claims adjustment expenses, together | with claims incurred but not reported To aid the review, the Committee The Group is also impacted by the liabilities included in the nancial considered the key judgements and current high ination environment, with statements, provide an appropriate estimates in the nancial statements as explicit allowance for this added into margin over projected claims costs to identied by the Chief Financial Ofcer, as reserves over the year. The Committee allow for the risks and uncertainties well as reports from the external auditor received presentations from the Chief within the portfolio. As with prior years, on the outcomes of its annual audit and Actuary and management on the the Committee also considers the report half-year review. The Committee ensured process undertaken, and the judgements of the external auditor following its 99Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | Audit Committee report | | information | summary | | re-projection of reserves using its own | macroeconomic factors underlying | The Committee, through the Investment | | --- | --- | --- | | methodologies, and the independent | the valuation process. The Committee | Committee, receives reports on the | | actuary who reviews the estimates | received updates on impairment | portfolio valuation and is content with | | of insurance liabilities for the Hiscox | testing and the analysis performed | the process and the estimates reported. | | Syndicates. On the basis of this work, | by management, and assessed the | Sensitivity analysis on valuation of assets | | it reported no material misstatements | appropriateness of the assumptions | is captured within the nancial risk section | | in respect of the level of reserves held | made. The Committee is satised with | (note 3.3 to the nancial statements) of | | by the Group at the balance sheet date. | the approach taken and the recoverability | the Annual Report and Accounts. | | On the basis of these assessments | of the goodwill and intangible assets. | | | and the consistent application of the | | vii) The recoverability of deferred tax assets | | Group’s reserving principles, the | v) Accounting for the dened | A deferred tax asset can be recognised | | Committee was satised that the | benet scheme | only to the extent that it is recoverable. | | valuation of insurance liabilities at | As explained in note 2.15 to the nancial | The recoverability of deferred tax assets in | | 31December2022 was appropriate. | statements, the Group recognises the | respect of carry-forward losses requires | | | present value of the dened benet | consideration of the future levels of | | ii) The recoverability of reinsurance assets | obligation, less the fair value of plan | taxable prot which will be available to | | The Committee received an update | assets at the balance sheet date. | utilise the tax losses. The assumptions | | on the credit risk exposures to | The Committee reviewed the key | regarding recoverability of deferred tax | | reinsurers. The reinsurer panel and | judgements and estimates used to | assets remain consistent with prior years. | | associated exposures appear to be | measure the pension scheme net liability | The Committee reviewed the underlying | | robust, and management are not | or asset position, and the results of the | assumptions for the recognition of deferred | | aware of any material issues regarding | independent pension valuation report. | tax assets, principally the availability of | | concentration risk, credit risk or default | A new funding agreement was signed | future taxable prots and utilisation period. | | risk. The Committee is satised with the | in 2022 and the impact of this was | | | approach taken and the recoverability of | assessed, with specic analysis of the | Controls and corporate governance | | reinsurance assets. | minimum funding requirements of IFRIC | The Committee received quarterly | | | 14 and the asset ceiling requirements of | updates on the effectiveness of the | | iii) Going concern assessment and | IAS 19. The Committee is satised that | nancial control environment. In addition, | | longer-term viability statements | the assumptions used to measure the | the Committee was updated on expected | | The Committee noted the Group’s | pension scheme are reasonable and that | changes to governance and audit with a | | going concern statements included | appropriate disclosures are provided in | focus on internal controls and enhancing | | in the Interim Statement and in this | the Annual Report and Accounts. | the nancial control framework. An | | Annual Report and Accounts, and | | approach to assess and implement the | | the assessment reports prepared | vi) Valuation of the investment portfolio | new requirements was proposed. The | | by management in support of such | The Group values and reports its | Committee was also given updates on | | statements. More information on the | investment assets at fair value. Due to | various FRC papers published in 2022 | | going concern and viability statements | the nature of the investments, as | on corporate reporting. | | can be found on pages 148 to 149. | disclosed in notes 17 and 20, the fair | | | | value is generally straightforward to | Environmental, social and governance | | iv) Recoverability of goodwill and other | determine for most of the portfolio | (ESG) reporting | | intangible assets | which is highly liquid. For the element | The Committee was updated on ESG | | Judgements in relation to impairment | of the portfolio held in equities and | reporting matters including external | | testing relate primarily to the | investment funds, a small proportion | developments such as activity by the | | assumptions underlying the calculation | relies on a higher degree of judgement. | International Sustainability Standards | | of the value in use of the Group’s | The impact of the Ukraine conict on | Board (ISSB). As the demand for | | businesses, being the achievability of | a small number of investments was | ESG-related disclosures increases, it | | the long-term business plans and the | reported to the Committee. | is important that Hiscox demonstrates | 100 Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | Audit Committee report | | information | summary | | its commitment to environmental, social | the progress of the internal audit plan, | To safeguard auditor independence and | | --- | --- | --- | | and governance factors. The Committee | the outcomes of recent audits, the | objectivity, non-audit services are not | | will play a key role in assessing the | progress of audit-related actions, and | contracted with PwC unless it is clear | | controls and assurance over these | any other relevant activities including | that there is no practical alternative | | disclosures going forward. | its key performance measures and the | and there are no conicts of interest | | | development of its resources. Updates | or independence considerations. | | Insurance contracts (IFRS 17) and | on aspects such as the assessment of | | | nancial instruments (IFRS 9) | internal audit’s effectiveness and the | Throughout the year, the Committee | | The Committee received regular updates | review of the internal audit policy are shared | has assessed the independence, | | on the Group’s IFRS 17 Insurance | annually. The internal audit plan is derived | effectiveness and quality of the external | | Contracts programme with an increasing | using a risk-based approach. In 2022, key | audit process. This assessment | | focus on the preparedness of the Group | themes included core underwriting and | considers the Committee’s interactions | | to implement the new standard. | claims controls, pricing, business and | with the external auditors and considers | | | IT operations, change, nancial control, | a variety of issues, including: the external | | The Committee monitored the | data governance and controls, ESG and | auditors’ experience and expertise; their | | implementation of the systems, | various regulatory themes. | professional scepticism and approach | | communication plan, processes and | | to challenging management where | | operating model to support the delivery of | External auditor | necessary; their efciency in completing | | the new nancial reporting requirements. | PwC has been the Company’s external | the agreed external audit plan; and the | | In addition, the Committee reviewed | auditor since 2016 following a tender | content, quality and robustness of their | | and approved material methodologies, | process. PwC is invited to attend all | reports. The Committee also takes | | policies, assumptions and reporting | meetings of the Committee and it is | into account the perspectives of those | | metrics, supported by a number of | the responsibility of the Committee to | in senior management who interact | | Board technical training sessions. This | monitor their performance, objectivity | with the external auditors on a regular | | included reviewing and challenging | and independence. The Committee | basis. This process forms the basis for | | the methodology and key judgements | discusses and agrees with PwC the | the Committee’s recommendation to | | underpinning the preparation of the | scope of its audit plan for the full-year | shareholders to reappoint the external | | opening balance sheet under IFRS 17. | and the review plan for the interim | auditor and no substantive concerns | | The Committee received regular updates | nancial statements. | were raised by the Committee this year. | from PwC in relation to the progress and | ndings from their assurance work. | The Audit Committee receives reports | Fair, balanced and understandable | | --- | --- | --- | | | from PwC at each meeting which include | The Committee assessed whether | | The Committee concluded that the | the progress of the audit, key matters | the Annual Report and Accounts, | | disclosures in respect of IFRS 17 | identied and the views of PwC on | taken as a whole, is fair, balanced | | included in note 2, basis of preparation, | the judgements outlined above. PwC | and understandable and provides the | | are appropriate for inclusion in the | also reports on matters such as their | information necessary for shareholders | | Annual Report and Accounts. | observations on the Company’s nancial | to assess the Group’s nancial position | | | control environment, developments | and performance, business model and | | The accounting policy changes and | in the audit profession, key upcoming | strategy. The Committee reviewed the | | implementation impacts of adopting | accounting and regulatory changes and | processes and controls that underpin | | IFRS 9 Financial Instruments from | certain other mandatory communications. | its preparation, ensuring that all | | 1January2023 were presented to | | contributors and senior management | | the Committee. | To provide a forum in which any matters | are fully aware of the requirements and | | | of concern could be raised in condence, | their responsibilities. | | Internal audit | the Non Executive Directors met with the | | | The Group’s Chief Auditor provided | external and internal auditors throughout | Donna DeMaio | | quarterly updates to the Committee on | the year without management present. | Chair of the Audit Committee | 101Hiscox Ltd Report and Accounts 2022 ## Q& ## A: with Nicola Grant Group Chief Human Resources Ofcer ## People person ## It’s been a busy year for Hiscox – rening ## its employee proposition and evolving ## its hybrid-working model – and now the ## Company is looking to better promote its ## unique culture to potential employees. > 102 Hiscox Ltd Report and Accounts 2022 103Hiscox Ltd Report and Accounts 2022 Nicola Grant joined Hiscox in September 2022 after 17 years with ING, bringing considerable experience in HR transformation, organisational development and design, talent management and diversity, equity and inclusion. Based in London, her role involves developing the Group’s people strategy and leading a team of 95 HR professionals around the world. | Q: What persuaded you to make the | ourselves as an employer of choice, | | --- | --- | | leap to Hiscox? | which is where we want to be, and getting | | A: I’d been with ING for 17 years and I | there is absolutely a priority of mine. | ## Q& loved it there. I needed the next move | | to be the right one. I’d talked with other | Q: How do you go about getting that | | --- | --- | --- | | | nancial institutions, but culturally we | message out there? | | A: | weren’t aligned. When I got a call about | A: It’s a number of things. We’ve been | | with Nicola Grant | Hiscox, my rst thought was: “I don’t think | busy rening our employee proposition | | Group Chief Human Resources Ofcer | insurance is for me”. But I remembered | – our promise to employees, if you like – | | | that, 20 years ago, I’d heard about Hiscox | and we have to start activating that in the | | | having a forward-thinking sabbatical | external environment. One thing we need | | | policy, so I agreed to have a conversation. | to do is leverage our alumni in a stronger | | | I met with Aki, and there were a couple | way. Throughout the organisation, we | | | of things about that conversation that I | have a lot of what we call ‘boomerangs’. | | | found exciting. Hiscox is going through | These are people who leave Hiscox but | | | this transformation from a big-small | come back, which I think says a lot about | | | company to small-big company, and the | the Company and its culture. I also think | | | opportunity to inuence that shift was | we have to be intentional about how we | | Q: Before joining Hiscox you | something really compelling. He was | position ourselves in universities and in | | worked for ING in New York, then | also completely authentic, and that was | other places in the community where | | Amsterdam. How did that experience | true of all of the people I talked to here. I | there’s the potential to start hiring. I think | | of working abroad prepare you for | genuinely felt that the culture would align | we have a real opportunity to differentiate | | overseeing HR in a company with a | with my own values, and for me that’s the | ourselves there. | | global footprint? | most important thing. | | | A: Working abroad, you learn a lot | | Q: You mentioned the employee | | about yourself, and you learn a lot about | Q: Based on your own experience, | proposition. How has that | | adapting to the environment in which you | does more need to be done to | been changing? | | work. You also learn how important it is | promote Hiscox’s employer brand | A: We’ve made some quick tactical | | to think in an inclusive, global way. For | to potential employees? | interventions to improve the employee | | example, hosting calls in the morning on | A: Hiscox is at a really exciting point | proposition while we work on the bigger, | | the East Coast of the USA when people | in time, where I think the opportunity | more strategic piece of work. One of | | have to dial in from the West Coast | to shout about our employer brand is | the main things is the concept of ‘time | | doesn’t create good experiences for | huge. As someone coming in with a fresh | out’, which includes a more modern | | all. You’d get up at 5am for these calls, | perspective, I can honestly say that I | sabbatical policy, so that instead of | | absolutely exhausted, then they’d be | do think Hiscox is unique, and so we | having to wait ten years, we now offer a | | cancelled ten minutes before. I became | mustn’t undervalue just what a special | four-week sabbatical for every ve years | | much more aware of simple things like | thing our culture is. That ‘human’ value | of employment. We also introduced | | that, which make such a big difference | is really lived, it’s such a lovely, friendly, | ‘Hiscox days’: people can take two extra | | to how people feel. In Amsterdam, I had | caring organisation, but also one lled | days off every year for whatever they | | to work very hard to build relationships | with smart individuals performing at an | want – religious holidays, birthdays or | | and gain buy-in from people in an ofce | incredibly high level. Had I not heard | just a duvet day. So far, we’ve seen them | | where English wasn’t the rst language, | about our sabbatical policy all those years | used on everything from school sports | | so I learnt what that feels like. What really | ago, and remembered it because it was | days to people renewing their wedding | | sticks with me though is how intentional | ahead of its time, I might have thought: | vows and I just love to hear those stories. | | you have to be to make everyone feel | “Insurance, boring, I’m not interested”. | Then, from January 2023, people can | | included. That’s something I’m very, | I think a lot of people have that thought | buy additional holiday. People want more | | very passionate about. | process, so we need to invest in branding | exibility, they want more choice, and | 104 Hiscox Ltd Report and Accounts 2022 Hiscox is at a really exciting point in time, where I think the opportunity to shout about our employer brand is huge. As someone coming in with a fresh perspective, I can honestly say that I do think Hiscox is unique, and so we mustn’t undervalue just what a special thing our culture is. That ‘human’ value is really lived, it’s such a lovely, friendly, caring organisation, but also one lled with smart individuals performing at an incredibly high level.” that and we have to be more intentional the look and feel – should be similar about talent and career development for throughout the organisation. Our staff. That’s something that is denitely a managers should have the same level of priority for next year. capability throughout the organisation We also introduced ‘Hiscox days’: and the same approach to management. people can take two extra days off Also, we continue to build our digital Our tooling, whether it’s performance every year for whatever they want – capabilities and from a people perspective management or our approach to talent, religious holidays, birthdays or just that’s something I’m interested in – how should be uniform. All of these things tell a duvet day. So far, we’ve seen them can we free people up from what I’d call a story. I’ve been to quite a few countries used on everything from school analogue tasks in a way that’s exciting for now and my observation is we do this sports days to people renewing their our people, but that also enhances our well and they’re all pretty consistent, wedding vows and I just love to hear abilities to develop our talent? so maintaining this will be a priority as those stories.” we scale. Q: The introduction of hybrid working has been a big change in recent years. Q: Outside of work, what gives How is that evolving? you energy? A: We’ve moved away from what A: Walking my dog in the elds in the employees told us was ‘rigid exibility’, morning. That’s a really important little they want more time out of the ofce, so where we said: “You need to return to bit of ‘me’ time and sets me up for the that’s what we’ve tried to deliver with this the ofce x-days a week”. Instead, we’ve day ahead. new suite of benets. introduced a much more collaborative approach within the teams where they | The other differentiating benet is the | work things out according to their | | --- | --- | | introduction of HSX:26, which extends | needs and dene this through a | | the concept of ownership – one of our | co-created team charter. That’s gone | | values. Every permanent employee has | down incredibly well. I really do believe | | been issued with stock that will vest in | all leading organisations will continue to | | 2026, so every employee is now an owner | move towards activity-based working. | | of the Company. HSX:26 is still open, so | We’re not going to go back to ve days a | | we can offer a pro-rated grant to new | week in the ofce – that ship has sailed. | | hires up until 2024, which is phenomenal. | I think the challenge is: how do you create | the community and the connection, and Q: What’s next? maintain our amazing culture, when you A: The work around employee don’t see each other very often? I think proposition won’t stop. We’re hosting orchestrating that is quite challenging, some focus groups to further rene our so that’s where we’re going to spend the employee proposition promise. There are time over the next year. a couple of other things we need to look at too. One is around capabilities. Which Q: Looking across the Group, are you capabilities are we going to invest in in able to maintain a consistent culture the future, which of those capabilities that crosses borders? will differentiate us as an employer and A: A strong internal culture can live in give us the edge in the market? The other all places. Everything we do needs to is our approach to talent management. be congruent. We have to signpost our More people than we would like say that values and culture, and the context in their primary reason for leaving is career which we operate needs to support development, so we have to learn from them. So, for example, our ofces – 105Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | ## Annual statement from the Chair of the ## Remuneration Committee | Dear fellow shareholder | are at the heart of what we do and | | --- | --- | | 2022 was a year of progress for Hiscox. | their experience of dealing with us is | | The Group delivered a strong underwriting | becoming an increasingly key part of our | | prot of $269.5 million, the highest for | overall performance, particularly given | | seven years, representing an ROE of | our growing retail focus. Likewise, we | | 10.8% from the core business, in a year | know that there is a strong relationship | | which has included a range of signicant | between employee engagement and | | natural and man-made catastrophes. | company performance, and we believe | | Hurricane Ian losses were much | that making Hiscox a great place to work | | lower than they would have been | is in shareholders’ long-term interests, | | had we not reduced our exposure to | in addition to being valuable in its own | | under-priced business. Hiscox has | right. We are also conscious of the | | achieved a combined ratio for retail | impact we can have as a business on the | | within its target range a year ahead of | environment, which is why we propose to | | market expectations and internal targets; | allow scope within our long-term incentive | | the bench strength of talent at a senior | plan for the addition of ESG-related | | leadership level was bolstered with a | targets. We anticipate that our use of | | number of new appointments, including | non-nancial measures will evolve as we | | Paul Cooper who joined the Executive | continue to develop our approach over | | team earlier in the year as the new Group | the coming years, in line with our strategic | ### Our remuneration strategy is | | Chief Financial Ofcer, bringing fresh | aims and evolving market practice. | | --- | --- | --- | | designed to attract and keep | thinking to the top table; and employee | | | | engagement scores reached their | The 2021 Annual Report and Accounts | ### talented, ambitious people highest level in ten years. included details of the Group’s strategic ### and foster a culture that evolution as Hiscox seeks to build more ### encourages sustainable high The Remuneration Committee has been balanced portfolios in the big-ticket ### performance. Our aim is to busy reviewing our remuneration policy businesses, alongside the signicant and consulting with shareholders in light structural growth opportunities that exist ### deliver strong returns across of the forthcoming policy review. As a in our retail operations. This strategic ### the insurance cycle and result of this process, we have proposed a evolution means that the prole of our ### create long-term value for | | number of changes which we believe will | returns is expected to change over time | | --- | --- | --- | | our shareholders.” | ensure that our executive remuneration | and this – along with the continuing | | | fully supports achievement of our strategic | volatility in market conditions – formed | | Colin Keogh | objectives and motivates continued high | part of the Committee’s decision-making | | Chair of the Remuneration Committee | performance on behalf of shareholders | around incentive targets and how they | | | – including our nancial results but also | calibrate with pay outcomes for 2023 and | | | our wider role as a responsible employer, | beyond (described below). Our objective | | | insurer and corporate citizen. | was to ensure the strongest possible | ongoing alignment between Executive The Committee is focused on ensuring pay outcomes and shareholder interests that we are rewarding performance in the context of market change. that is sustainable. As such, we plan to introduce non-nancial performance Remuneration policy review measures under our incentive plans for The comprehensive policy review the rst time as we look to further focus conrmed that, overall, our framework Executive Directors on leading measures continues to operate effectively, of performance. Our customers supporting our aims of delivering strong 106 Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | Annual statement | information | summary | from the Chair of the Remuneration Committee | returns across the insurance cycle and | | colleagues, for the 2023 annual bonus | As work continues in this area and | | | --- | --- | --- | --- | --- | | creating sustainable long-term value for | | we propose the introduction of employee | having considered shareholder | | | our shareholders. Nevertheless, we are | | and customer engagement metrics – | feedback, for 2023 LTIP awards we | | | proposing some improvements, set out | | each weighted at 5% of total bonus. | propose to retain our past focus on | | | below, with three key objectives in mind: | | The customer and employee metrics | nancial measures only, with a 50% | | | A to align the policy with good | | are direct drivers of business growth | weighting proposed for relative TSR | | | | remuneration practice among | and performance, so fully aligned with | and 50% for NAV growth. We will | | | | UK-listed companies; | shareholder value. | consult with shareholders again ahead | | | A to reduce any unnecessary | | | of introducing an environment-related | | | | complexity and volatility within | Employee engagement will be measured | measure in future years. | | | | the framework; and | by considering our annual employee | | | | A to appropriately reinforce our | | engagement survey scores, and | Good governance changes | | | | environmental, social and | customer engagement will be considered | We are also proposing a number of | | | | governance (ESG) responsibilities. | through quarterly claims transactional | smaller changes to the policy in order to | | | | | NPS results across our retail businesses. | ensure its continued alignment with good | | | Throughout the review process, | | | governance practice. | | | shareholders have provided valuable, | | Alongside these engagement metrics | A Bonus deferral mechanism: the | | | constructive feedback on the proposals | | will be an individual personal objectives | | current policy includes a cash | | and on behalf of the Committee, I would | | scorecard weighted at 15%, taking the total | | deferral structure which applies for | | like to thank all those who contributed. | | non-nancial component of the bonus for | | up to two years following the end | | | | 2023 to 25% for each Executive Director. | | of the nancial year, with a variable | | Performance measures for incentives | | | | amount deferred depending on | | Our incentives have previously been | | Long-term incentive plan (LTIP) | | bonus quantum. In order to align | | based only on nancial measures, with | | The LTIP is intended to incentivise and | | Executive interests further with | | a discretionary overlay to account | | reward our Executives for delivering | | shareholders, align with market | | for non-nancial performance. The | | against long-term objectives that are | | practice and make deferral simpler, | | Committee intends to add formal | | focused on growth in Company value and | | we propose that deferral be applied | | non-nancial metrics into the framework | | aligned with the interests of shareholders. | | at a at rate of 40% of bonus with | | of both the bonus and long-term | | | | amounts deferred into Hiscox | | incentive plan to reect the Group’s | | The current metrics of growth in net | | shares and released three years | | wider strategic objectives and align | | asset value (NAV) per share plus | | following the end of the relevant | | with developing market practice among | | dividends and relative total shareholder | | performance year. | | UK-listed companies. The non-nancial | | return (TSR) measured against a group | A Post-employment share ownership | | | metrics have been carefully selected to | | of our main peers, remain key measures | | guidelines: post-employment | | be relevant to business performance. | | of our long-term success and are | | share ownership under the | | | | therefore being retained. | | current policy tapers by 50% at | | Annual bonus | | | | one year post-termination. We | | The annual bonus is intended to align | | To complement the existing structure | | propose to align to the Investment | | reward with the achievement of key annual | | we are proposing to include in the policy | | Association’s principles of | | objectives. We are proposing in the policy | | the capacity to base up to 30% of LTIP | | remuneration, to extend the full | | to base up to 25% of annual bonus awards | | awards in future years on non-nancial | | post-employment shareholding | | on non-nancial performance measures. | | measures, including an element related | | guideline to two years with a | | The majority of the bonus opportunity | | to our environmental impact in order | | requirement to hold shares in line | | (75% of the total) will still be based on | | to ensure that the LTIP supports the | | with the in-service guideline in place | | nancial metrics which remain the | | delivery of our wider corporate strategy | | immediately prior to departure, | | primary driver of bonus awards. Given | | and recognises the impact that we can | | or the actual shareholding on | | the importance of our customers and | | have as an insurer and an investor. | | termination if lower. | 107Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | Annual statement | information | summary | from the Chair of the Remuneration Committee | A Malus and clawback: we propose | | strategy of building more balanced | effect of an accounting impact on | | --- | --- | --- | --- | | | to extend our current provisions | portfolios to drive reduced earnings | the maturity prole of our bonds is, | | | by adding to the existing list of | volatility. Hiscox has achieved strong | we feel, appropriate from a short-term | | | circumstances that may trigger the | organic capital generation, enabling | incentive perspective. | | | use of malus or clawback. Further | deployment of additional capital into a | | | | details are included on page 140. | very favourable rating and underwriting | For the three Executive Directors, | | | | environment while continuing to maintain | without adjustment they would not | | Target setting | | a strong balance sheet and solvency ratio, | receive a bonus in respect of 2022. | | The strategic evolution of the Group | | and preserving a progressive dividend. | Given the Group reported its strongest | | (see pages 6 to 7) has two important | | | underwriting prot since 2015 during | | consequences – rst, more consistent | | However, an excellent underwriting | what has been a turbulent year, and | | earnings growth should, over time, | | performance was masked by signicant | considering the broader contribution | | narrow the range of performance | | unrealised investment losses in our bond | and impact made by Executive | | outcomes and, secondly, the planned | | portfolio. This was driven by the high level | Directors, after careful consideration | | increase in the contribution from retail | | of volatility in the global bond markets | the Committee determined that it | | should, again over time, reduce NAV | | this year and some of the sharpest rises | would be appropriate to exclude 50% | | volatility arising from underwriting. | | in interest rates on record. Most of the | of the unrealised investment losses on | | | | bond portfolio losses are mark-to-market | bonds ($107.5 million) for 2022, from the | | Therefore, the Committee felt it was | | losses, and thus accounting rather than | bonus calculation. This results in an | | important to incentivise Executives to | | cash losses. Given that our portfolios | adjusted pre-tax ROE result of 6.1%. | | deliver long-term incremental and stable | | typically hold these investments until | | | growth in earnings. We will therefore | | maturity, and the portfolio is of very high | The Committee is of the view that | | seek to incorporate these factors as | | quality, we expect that these losses | paying 25% of the maximum bonus | | we set incentive targets. For 2023 this | | will unwind as the bonds mature. | opportunity to Executive Directors is | | will involve: | | | a fair outcome and that payment of | | A slightly lower parameters for the | | Remuneration outcomes for 2022 | this level of bonus is aligned with the | | | ROE outcomes that underpin our | 2022 annual bonus | shareholder experience. The Committee | | | bonus targets; and | Pre-tax ROE, our performance | also noted the improvement in share | | A a narrower range of NAV growth | | metric for both Executive Director and | price performance seen during 2022 | | | outcomes applicable to the LTIP. | wider workforce prot bonuses, was | and the payment of dividends which | | | | materially impacted by the unrealised | were not impacted by unrealised | | In setting the targets, we have also moved | | investment losses on the bond portfolio. | investment losses. | | away from referencing the risk-free rate | | The Committee is rmly of the view | | | to absolute thresholds for ROE and NAV | | that unrealised gains and losses in | As with the wider workforce, we will | | growth, reecting both broader market | | such a volatile external environment | adjust the bonus pools over the next | | practice and also the fact that the | | are not a helpful or fair reection of | three years to remove the unwinding | | risk-free rate is forecast to remain volatile. | | management performance. | of the unrealised investment losses, | so that there is no future benet. | 2022 business performance | For the wider workforce, the Committee | | | --- | --- | --- | | The Group has delivered a strong | has decided that the fairest course is | 2020-2022 LTIP | | result in an active year of geopolitical | to pay bonuses on the pre-tax result | Growth in NAV per share plus dividends | | uncertainty, economic unpredictability | after excluding the impact of unrealised | is our performance metric for awards | | and natural catastrophe losses. An | investment losses on bonds in their | made in 2020, vesting in 2023. | | underwriting prot of $269.5 million | entirety. As those bonds return to par | Performance averaged over 2020, | | (2021: $215.6 million) and combined ratio | over the next three years, we will adjust | 2021 and 2022 has not met the vesting | | of 90.6% (2021: 93.2%) is a testament | future bonus pools to remove the impact | threshold and therefore awards made | | to the disciplined execution of a rened | of any future gains. This smoothing | to Executive Directors will lapse in full. | 108 Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | Annual statement | information | summary | from the Chair of the Remuneration Committee | 2023 remuneration | Rewards and benets | | Pay reporting, measurement | | --- | --- | --- | --- | | Executive Directors will receive salary | Another of the Group’s strategic | | and monitoring | | increases of 5% which is below the | priorities for 2022 was to take a fresh | | In 2022, Hiscox published its sixth annual | | average across other Hiscox employees | look at the experience of working at | | gender pay report for the UK, and the | | in the UK of 6.1%. | Hiscox, ensuring it remains a great | | mean pay gap of 16.0% (2021: 19.1%) | | | place to work and build a career. | | represents steady progress at getting | | Award opportunities under the bonus | This was a consultative process, | | more women into more senior and | | and LTIP arrangements remain | with views collected from across the | | higher-paid roles. Since 2017, on a mean | | unchanged from 2022. | Group, and resulted in some signicant | | basis, our gender pay gap has reduced | | | improvements to the global benets | | steadily and is now 15 percentage points | | Proposed changes to the performance | offering during 2022: | | lower than when reporting commenced. | | metrics and the assessment process for | A the introduction of HSX:26 | | | | both plans are outlined above. Further | | – an all-permanent-staff share | While gender pay gap reporting is a | | detail on the measures and targets are | | ownership grant, in line with | UK-specic disclosure requirement, | | set out on pages 123 to 124. | | our ownership value and in | internally we measure and monitor | | | | recognition of the critical role | the gap globally. This supports our | | Wider workforce | | that all employees play in | continued focus on DEI and is reected | | Engagement | | achieving our strategic | in how we nurture talent and build a | | We recognise the importance of | | objectives between now and | pipeline of diverse leaders. For example, | | engaging with and seeking feedback | | 2026, when the shares vest; | each business unit and function across | | from employees on issues including | A a refreshed sabbatical policy | | the Group has an action plan in place | | remuneration to inform decision-making. | | – giving all permanent staff a | that is measured and monitored and | | One of the ways we do this is through | | four-week paid sabbatical for | ensures we are building gender diversity | | our Employee Engagement Network, | | every ve years of service; and | into succession planning and career | | a representative group from across | A the introduction of Hiscox | | development as we seek to realise | | functions and geographies, whose | | days – giving our people two | women’s leadership potential across | | sessions are facilitated by Employee | | additional days of leave to allow | our business. | | Liaison and Non Executive Director | | them to mark occasions that | | | Anne MacDonald and whose anonymised | | matter to them – from religious | In summary | | views are shared with the Board | | holidays, to family events, or | The Remuneration Committee is satised | | throughout the year. In 2022, a range of | | something else important. | that the 2022 remuneration outcomes | | people-related topics were discussed | | These days may also be | are aligned with the experience of | | in this forum, including new ways of | | donated to a colleague. | shareholders and reective of business | | working, diversity, equity and inclusion | | | performance. Our policy has served | | (DEI) and remuneration. | Pay | | us well to date, but we believe that the | | | Financial well-being is a core pillar | | proposed amendments reect good | | Another way in which we do this is | of our benet philosophy and is why | | market practice, align incentives with our | | through the Group’s annual employee | Hiscox has been an accredited Living | | wider strategic objectives, and will enable | | engagement survey, and the Committee | Wage employer in the UK since 2019. | | us to continue to retain and recruit the | | is particularly pleased with the positive | In 2022, we recognised the additional | | high-calibre leadership required to deliver | | improvements in employee engagement | challenges of high ination levels and | | in a highly competitive global sector. | | during the year, reecting the strategic | an increased cost of living, and made | | | | importance placed on building connected | cost of living lump sum payments | | Colin Keogh | | teams post-pandemic. More information | of £1,500/$1,500/€1,500 to the | | Chair of the Remuneration Committee | | on the Group’s 2022 employee | lowest-earning portion of our workforce | | | | engagement scores, the highest in | – with 38% of our people benetting from | | | | ten years, can be found on page 3. | a one-off payment. | | | 109Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | 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 xed 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 prots and shareholder returns in excess of specied ## Benets return thresholds; A incentivise Executive Directors Same as majority of employees. appropriately, over the short and long term; and A align Executive Directors’ interests ## with those of our shareholders, Annual bonus 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 2022 | Bonus of c.25% | Performance Share | | --- | --- | | of maximum | Plan (PSP) | | opportunity for the | Aligned to long-term shareholder | interests and performance. ## Executive Directors. ## Long-term performance ## impacted by Covid-19 ## events and catastrophe ## claims. PSP awards ## Shareholding guidelines ## granted in 2020 will Aligned to shareholder interests. ## not vest. ## Single gure of ## £1,390,959 for the CEO. 110 Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | Remuneration summary | information | summary | 132 Read our updated remuneration policy. ## Implementation of policy for 2022 Implementation for 2023 Salaries for 2022: Salaries for 2023: ## Base salary | | — Aki Hussain: £750,000 | — Aki Hussain: £787,500 | | --- | --- | --- | | Competitive xed pay. | — Paul Cooper: £525,000 | —Paul Cooper: £551,250 | | | — Joanne Musselle: £525,000 | —Joanne Musselle: £551,250 | Salary increase of 5% in line with the average UK employee increase of 6.1%. Executive Directors’ benets can include health insurance, life insurance, long-term disability schemes and participation in ## Benets all-employee share schemes. Retirement benets 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 benets mirror those available to most other employees in the organisation. Maximum opportunity: Maximum opportunity unchanged. ## Annual bonus — up to 300% of salary for CEO and CFO; Performance metrics: 75% weighting Aligned to shareholder interests. — up to 400% of salary for CUO. on ROE and 25% on non-nancial Over the past ten years, the average bonus awarded to the CEO has been equivalent performance metrics. Further details to 26% of the current maximum opportunity. are provided on page 123. Performance metrics: disclosure of the ROE target ranges and detail around Deferral: at rate of 40% of bonus with the individual performance factors used to determine outcomes for 2022 is amounts deferred into Hiscox shares provided on pages 114 to 117. and released three years following the end of the relevant performance year. Deferral: part deferral of amounts in excess of £50,000. 2022 actual as a percentage of maximum opportunity: — Aki Hussain: 25% — Paul Cooper: 25% — Joanne Musselle: 25% Award subject to three-year performance period and two-year holding period. Maximum opportunity, time horizon and ## Performance Share holding period all unchanged. Maximum opportunity: 250% of salary for all Executive Directors. ## Plan (PSP) Vesting subject to: net asset value Vesting subject to: net asset value per share growth plus dividends (60% weighting) Aligned to long-term shareholder per share growth plus dividends and relative TSR (40% weighting). interests and performance. (50% weighting) and relative TSR 2022 award as percentage of salary: (50% weighting). — Aki Hussain: 250% 2023 award as percentage of salary: — Paul Cooper: 250% Aki Hussain: 250% — Joanne Musselle: 250% Paul Cooper: 225% Holding period: awards subject to a further two-year holding period following vesting. Joanne Musselle: 225% Share ownership guidelines of 200% of salary for all Executive Directors, Share ownership guideline unchanged. ## Shareholding guidelines after ve years in role. Post-employment shareholding Aligned to shareholder interests. | 2022 actual: | requirement: maintain the level of the | | --- | --- | | — Aki Hussain: 212% | in-employment shareholding guideline | | — Paul Cooper: 62% Paul Cooper was appointed in May 2022. | (or the actual shareholding on stepping | | — Joanne Musselle: 243% | down, if lower) for two years following | stepping down from the Board. 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. 111Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | ## Annual report on remuneration 2022 ## This report explains how the remuneration policy was implemented ## for the nancial year ended 31 December 2022. PwC has been engaged to audit the sections in the annual report on remuneration 2022 below entitled ‘Executive Director remuneration’ and ‘additional notes to the Executive remuneration table’, ‘annual bonus’, ‘performance outcomes for 2022’, ‘long-term incentive plan’, ‘Non Executive Director remuneration table’, ‘Directors’ shareholding and share interest’, ‘Performance Share Plan’ and ‘Sharesave Schemes’, ‘payments to past Directors’, ‘payments for loss of ofce’, to the extent that would be required by the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2013. Executive Director remuneration table (audited) 2022 Total split Long-term | | | | | | | incentive | | | | | | | | Fixed | Variable | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Salary | | Benefits | | Bonus | | plan | 4 | Retirement | | Other | 3 | Total | remuneration | remuneration | | | Name | | £ | | £ | | £ | | £ | | £ | | £ | | £ | £ | £ | 1 Aki Hussain 750,000 10,593 562,500 0 67,8 66 0 1,390,959 828,459 562,500 2 Paul Cooper 340,057 6,009 237,182 0 30,732 620,273 1,234,253 376,798 8 57,45 5 Joanne Musselle 522,125 8,890 525,000 0 43,527 0 1,099,542 574,542 525,000 2021 Total split Long-term incentive Fixed Variable Salary Benefits Bonus plan Retirement Total remuneration remuneration Name £ £ £ £ £ £ £ £ Aki Hussain 511,000 8,308 462,15 0 0 46,453 1,0 27, 911 565,761 462,15 0 Joanne Musselle 511,000 9,060 550,000 0 46,938 1,116,99 8 566,998 550,000 ¹Aki Hussain was appointed as Group Chief Executive Officer on 1 January 2022 (he was formerly the Group Chief Financial Officer). 2 Paul Cooper was appointed as Group Chief Financial Officer on 9 May 2022 and appointed to the Hiscox Ltd Board as an Executive Director on 12 May 2022. Details of his joining package are contained on page 107 of the 2021 remuneration report. 3 Includes Sharesave scheme discount to market value of £4,500 (see page 121), plus 2021 bonus buy-out of £253,470 paid in May 2022, plus partial 2022 bonus buy-out of £119,318, plus share buy-out of £242,985 using the middle market quotation of £9.142 on the 20 September 2022 vesting date. Dividend equivalents were added. The share price had dropped 5% between the date of grant and vest. See page 117 for more details of buy-out arrangements. 4 2022 long-term incentives for Aki Hussain and Joanne Musselle relate to performance share awards granted in 2020 where the performance period ends on 31December2022. The award is due to vest on 15 May 2023. Based on the performance achieved, the awards will not vest. As the award will lapse in full there is no part of the award attributable to share price appreciation. 112 Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | Annual report on | information | summary | remuneration 2022 Additional notes to the Executive Director remuneration table (audited) Salary Salary reviews take place in the first quarter of the year, effective from 1 April. As noted in last year’s remuneration report, Joanne Musselle’s salary was increased by 2.2% from April 2022, which was below the average UK-based employee salary increase. Aki Hussain’s salary remained unchanged from his 1 January 2022 starting salary. Paul Cooper’s salary was effective from him commencing employment on 9 May 2022. Base salaries for Executive Directors from 1 April 2022 were as follows: April 2022 £ Aki Hussain 750,000 Paul Cooper 525,000 Joanne Musselle 525,000 Benets For 2022, benefits provided for Executive Directors included the healthcare scheme, life insurance, income protection insurance and critical illness policies, as well as a Christmas gift and fitness cash allowance. Retirement benets Aki Hussain and Paul Cooper received a 10% of salary cash allowance in the year (less an offset for the employer’s UK National Insurance liability) in lieu of the standard employer pension contribution. Joanne Musselle receives a combination of cash allowance and employer pension contribution totalling 10% of salary (less an offset for employer’s UK National Insurance on the cash allowance). The value of these retirement benefits are shown in the Executive Director remuneration table on page 112. Executive Director retirement benefits are consistent with those offered to the majority of UK employees. This has been the policy at Hiscox for a number of years. Variable pay To ensure that remuneration is aligned with Company performance and the shareholder experience, a significant proportion of pay is delivered through incentive awards, consisting of an annual bonus and share awards under the Performance Share Plan, which can vary significantly based on the level of performance achieved. Bonuses are only paid if results exceed a specified threshold set taking into account prevailing market conditions. Although the remuneration structure has naturally evolved over time to reflect market and best practice, the simple framework has been in place for more than 15 years. 113Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | Annual report on | information | summary | remuneration 2022 Annual bonus (audited) The Executive Directors, along with other employees across the Group, participate in prot-related bonus pools, which are calculated at a business unit level and for the Group as a whole. The Remuneration Committee believes that the most appropriate measure for the calculation of the bonus pool is pre-tax return on equity (ROE), as this aligns management’s interests with those of shareholders, minimises the possibility of anomalous results, and ensures that incentives for Executive Directors and other employees are tied to the Company’s prot performance. When setting targets, the Committee seeks to motivate strong performance while also encouraging sustainable behaviours, in line with the dened risk appetite of the business. The bonus is structured in a way that ensures signicant variability in outcomes, including the possibility of no bonus being paid. Over the past ten years there have been three occasions when the Group delivered a pre-tax ROE below the required threshold and no bonuses were paid to Executive Directors. The threshold is set annually using an investment benchmark rate and for 2022 was set at a pre-tax ROE of risk-free-rate plus 2.5%. In determining the bonuses to be paid to Executive Directors, the Remuneration Committee bases its judgement on both the performance of the Group and a robust assessment of personal and strategic objectives, including adherence to specic risk management objectives. Details of the key objectives for 2022 and individual achievements by the Executive Directors are shown on page 116. The Remuneration Committee also seeks input from the Chief Risk Ofcer and Chief Actuary. To aid the Committee’s assessment of bonus outcomes, the following framework was in place for 2022. Pre-tax return on equity Indicative bonus range (% of max) 144 Hiscox Ltd Report and Accounts 2022 145Hiscox Ltd Report and Accounts 2022 After building his career at R.J. Kiln Syndicate, Argo Re, Ariel Re and MS Amlin, Matthew Wilken joined Hiscox Re & ILS in January 2022. He is responsible for executing the business’s underwriting strategy and delivering long-term value by ensuring the needs of clients and capital partners are successfully met. robust and demanding. Now I’m here, very senior people – even at the very early I can conrm that’s true! Historically, it’s stages of a career in reinsurance, you’ll very heavily associated with reinsurance. be dealing with senior brokers, CEOs ## Q& | | There have been a lot of newcomers | and CFOs. So you need to understand | | --- | --- | --- | | | in our space, particularly over the past | the pressure that these people are under, | | | decade and a half, but there aren’t | how they tick, what’s on their mind. It’s not | | A: | many companies that are steeped in the | easy, but my gosh it means you develop | | with Matthew Wilken | history of reinsurance and have made it | your expertise quickly. | | Chief Underwriting Ofcer, | a fundamental pillar of their strategy. | | | Hiscox Re & ILS | To have the positive re-enforcement | Q: As Chief Underwriting Ofcer, | | | from management that reinsurance is, | what kind of culture are you looking | | | and will remain, an integral part of our | to foster? | | | business is a really strong sell to the | A: Re & ILS has 19 underwriters and | | | clients, to our capital, and to our teams. | every one of them is bringing in millions | | | That’s really valuable. | of Dollars in gross written premiums, | running really key accounts. I don’t | | Q: What do you think are the key | underestimate that kind of responsibility, | | --- | --- | --- | | | ingredients of a high-performing | so coming in here as a newbie it’s | | Q: Tell us a little about your | underwriting operation? | important to respect the road that has | | professional background. | A: I think there are a few key ingredients | led them to this point in time. As a leader, | | A: I joined the industry in 1991, a | actually. It’s a business that has an | you sit, you listen, you observe, and | | year before Hurricane Andrew. The | inherent uncertainty built into it, so | you try to build trust. Our work demands | | reinsurance market was going through | you need the tools to be able to deal | a close structure, huge communication | | a paradigm shift similar to the one we’re | with that, measure it and understand | and inherent trust. Culturally, we need | | experiencing now, some three decades | what it means. That rigorous analytical | people with as little ego as possible | | on. I joined R.J. Kiln as a graduate trainee | capability needs to be reected in senior | who trust one another and work | | and at that stage had not appreciated | management, in our capital models and | seamlessly as a team. And that’s | | just how instrumental the company | in the underlying models that allow us to | what we have. But it takes effort to do | | was in creating the foundations of the | transact our business and get the best | that because we’re in two different | | catastrophe reinsurance marketplace | price. I also rmly believe that reinsurance | locations – Bermuda and London. If | | at Lloyd’s. Robert Kiln literally wrote the | is a long game. This is about developing | we were disparate from one another | | book on how to transact reinsurance; | relationships, developing trust. It’s not | and not absolutely connected it would | | a book that became known in our part | just about capital optimisation in the short | signicantly diminish the value. That’s | | of the industry as ‘the bible’. I suspect | term and swapping clients willy-nilly. We | why a strong culture is key. | | there are people of my generation in | have a nite number of clients and, as | | | Hiscox who can still nd a copy on their | a result, we build relationships that last | Q: You mentioned that the industry | | bookshelves! I’ve known Hiscox through | decades. I’m still dealing with customers | is undergoing a paradigm shift. How | | that entire time, in the unique and lovely | who I rst saw when I was a junior | would you characterise that? | | Lloyd’s way – they were a competitor, | underwriter in the nineties. | A: This is a complex but nite industry | | but they were also a kindred spirit: | | that’s been heavily inuenced by the | | supportive of the industry, innovative, | But marrying that analytical capability | use of third-party capital, particularly | | creative and courageous. | with a long-term relationship-building | in the last ten years. There’s now an | | | philosophy is difcult. It takes balance and | imbalance of demand and supply. | | Q: From the outside, what had your | experience. In reinsurance, even more so | Supply has gone down, but demand is | | perception of Hiscox been? | than some other parts of insurance, every | not staying at – it’s increasing. We’ve | | A: From afar, I always considered it | single person in the team needs to have | got an inationary environment, the | | a rigorously intellectual organisation, | the condence to negotiate and talk to | average cost of products is rising, the | 146 Hiscox Ltd Report and Accounts 2022 There’s now an imbalance of demand and supply. Supply has gone down, but demand is not staying at – it’s increasing. We’ve got an inationary environment, the average cost of products is rising, the average cost of houses is rising, so the average losses are rising. That means insurance companies are buying more reinsurance cover to protect their rising exposures.” larger amounts of smaller losses people are buying them. For example, going into catastrophe reinsurance more people than ever want to live by programmes. That’s now disappearing, the coast. Florida is a prime example and more reinsurers are going back to of this and represents one of the most Reinsurance demands time the idea that the value we really create vulnerable places to hurricanes on Planet in the industry to understand is the protection of the infrequent Earth. The impact is that if you have a cat the complexities, and build the severe lossesthat threaten our client’s loss now, it’ll cost way more than it used relationships, so succession capital. When you need us, we’re to and that needs to be considered and planning is fundamental. there with our capital and our security priced for. Thankfully, Hiscox has got and our longevity. The whole structure a brilliant graduate programme.” is changing. Q: What do you need to do to prepare your team for the future? | | In the face of that change, we need to | A: Reinsurance demands time in the | | --- | --- | --- | | | have courage. After Hurricane Andrew in | industry to understand the complexities, | | | 1992, after the World Trade Centre, and | and build the relationships, so succession | | | after Hurricane Katrina, the companies | planning is fundamental. Thankfully, | | | that were successful were those that | Hiscox has got a brilliant graduate | | | had the courage of their convictions, | programme. The idea that we’re bringing | | average cost of houses is rising, so the | a sophisticated ability to measure the | in the young, bright, aspirational leaders | | average losses are rising. That means | risk, continuity and longevity in their | of tomorrow, training them on the job | | insurance companies are buying more | relationships, the experience to be able | and giving them a pathway to develop | | reinsurance cover to protect their rising | to write the contracts and the capital to | is really strong. So that’s key to me. | | exposures. But you can’t just increase | support it. | The other thing that’s important is the | | your line without having the capital to do | | diversity and inclusion policy. If you sit in | | it and broadly speaking the capital just | Q: Where do you see the opportunities? | the average room of reinsurers, 80% of | | isn’t there. Our industry is quite systemic | A: The reinsurance world is focused | them are going to be white males. We’ve | | in its use of capital models, and every | on property catastrophe excess of loss | made a conscious effort to make sure we | | organisation has some form of tool that | business (or what we call property cat) at | address those issues, and we need to | | helps it optimise its return on capital, so | the moment. For us it’s the largest part | keep doing more. | | there isn’t a lot of spare capacity sitting | of our overall portfolio. But reinsurance | | | on anyone’s balance sheet. Exacerbating | extends to a lot of other lines as well – the | Q: Outside of work, what gives | | this situation is the fact that new capacity | so-called specialty lines, such as marine | you energy? | | is not entering the space at the moment | and energy and cyber. We want to grow | A: I’ve got family, I’ve got two sons and | | so market conditions are reecting this | those lines and we’ve got the ability to do | our life revolves around them. Aside | | lack of supply. | so, so we’ll continue to build out those | from that, it’s sport. I’m a passionate | | | areas as we go forward. | snowboarder, play golf (badly!) and still | | Q: What impact is that disparity | | rock climb occasionally if the opportunity | | having on the structure of the industry? | On the property cat side, it’s about | arises. I’m still a bit of an adrenaline | | A: The reinsurance industry used to | getting the right prices at the right | junkie. I’m a very keen kite-surfer, surfer, | | be there to protect the infrequent and | attachment levels and most importantly | wind surfer – anything on water I’ll give it | | very severe losses that would impact | the correct line-size committed on | a go! But kite surng’s my thing over here | | companies’ survival, but over the years | each deal. The industry has, I think, | in Bermuda. That’s my get-out-of jail-free | | – as there’s been an excess of supply, | lagged behind the attachment level | card to release the stress. | | and as companies have become more | of the cat product. The vulnerability | | | condent in their ability to model price | of cedants’ portfolios have increased | | | – there’s been a tendency to grow into | massively – the number of houses that | | | ever-more vulnerable areas and have | exist, what their value is and where | | 147Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | ## Directors’ report | The Directors have pleasure in | on pages 44 to 47. In addition, note 3 to | The nancial position of the Group, its | | --- | --- | --- | | submitting their Annual Report and | the consolidated nancial statements | cash ows and borrowing facilities are | | consolidated nancial statements for | provides a detailed explanation of the | included in the capital section on pages | | the year ended 31December2022. | key risks which are inherent to the | 42 to 43. The Group has considerable | | | Group’s business and how those | nancial resources and a well-balanced | | Management report | risks are managed. | book of business. | The Company is a holding company for | subsidiaries involved in the business of | Compliance with the UK Corporate | The Board has reviewed the Group’s | | --- | --- | --- | | insurance and reinsurance in Bermuda, | Governance Code 2018 (the Code) | current and forecast solvency and | | the USA, the UK, Guernsey, Europe | Details of how the Company has applied | liquidity positions for the next twelve | | and Asia. The information found on | the principles set out in the Code and the | months and beyond. As part of the | | pages 24 to 37, 44 to 47, 166 to 230 | extent to which it has complied with | consideration of the appropriateness | | and 232 fulls the requirements of the | the provisions of the Code are set out | of adopting the going concern basis, | | management report as referred to in | on pages 88 to 93. | the Directors use scenario analysis | | Chapter 4 of the Disclosure Guidance | | and stress testing to assess the | | and Transparency Rules (DTR). This | Emerging and principal risks | robustness of the Group’s solvency | | includes additional explanation of | The conrmation required by Provision | and liquidity positions. Scenarios and | | the gures detailed in the nancial | 28 of the Code in relation to the Board’s | stresses assessed include economic | | statements and the ofce locations | robust assessment of the Company’s | downturns/shocks, higher ination, | | of the Group in different countries. | emerging and principal risks (referred | cyber attacks, reinsurance default | | | to in this document as key risks) can be | and natural catastrophe events. A | | The key performance indicators are | found on page 46. | number of potential mitigating factors | | shown on pages 4 to 5. Details | | and management actions have been | | of the use of nancial instruments | Corporate governance statement | identied to address the potential | | are set out in notes 3.3 and 17 to the | The information that fulls the | adverse effects on the Group’s solvency | | consolidated nancial statements. | requirements of the corporate | and liquidity. Stress and scenario testing | | An analysis of the development and | governance statement as referred | is based on expert opinion and as such is | | performance of the business during | to in DTR 7.2 can be found on pages | highly subjective. Multiple experts within | | the nancial year, its position at the end | 83 to 87 in this report. | the business review the provisional results | | of the year, any important events since | | in order to reduce individual biases and | | the end of the year and the likely future | Diversity | to try and ensure all possibilities are | | development can be found within the | The diversity of the business is outlined | considered and captured. | | Chief Executive’s report on pages 24 | in the Nominations and Governance | | | to 37. The Chief Executive’s report | Committee report on pages 94 to 98 | In undertaking this analysis, no material | | also describes the main trends and | and on page 59. | uncertainty in relation to going concern | | factors likely to affect the future | | has been identied. This is due to the | | development, performance and | Financial results | Group’s strong capital and liquidity | | position of the Company’s business. | The Group delivered a pre-tax | positions, which provide resilience to | | A description of the Company’s | prot for the year of $44.7million | shocks, underpinned by the Group’s | | strategy and business model is set | (2021:$190.8million). Detailed results for | approach to risk management which is | | out on pages 6 to 7. The Company | the year are shown in the consolidated | described in note 3 on pages 182 to 192. | | is not involved in any research and | income statement on page 166. | | | development activities. A description of | | After making enquiries, the Directors | | the key risks and uncertainties and how | Going concern | have a reasonable expectation that the | | they are managed or mitigated can be | A review of the nancial performance | Group has adequate resources to | | found in the key risks section on pages | of the Group is set out in the Chief | continue in operational existence over a | | 8 to 11 and the risk management section | Executive’s report on pages 24 to 37. | period of at least 12 months from the date | 148 Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Directors’ report | of this report. For this reason, the Group | Board carried out, as part of the Group’s | shareholder approval) of 24.0 cents | | --- | --- | --- | | continues to adopt the going concern | solvency self-assessment process, | per share, to be paid on 13June2023 | | basis in preparing the consolidated | a robust assessment using scenario | to shareholders on the register at | | nancial statements. | analysis and stress testing to consider | 5May2023. | the Group’s capacity to respond Longer-term viability statement to a series of relevant nancial, Bye-laws The preparation of the longer-term insurance-related or operational shocks The Company’s Bye-laws contain no viability statement includes an should future circumstances or events specic provisions relating to their assessment of the Group’s long-term differ from these current assumptions. amendment and any such amendments prospects in addition to an assessment The adequacy of the liquid resources are governed by Bermuda Company of the ability to meet future commitments of the Group’s parent company has Law and subject to the approval of and liabilities as they fall due. been assessed by considering stress shareholders in a general meeting. scenarios that would result in additional | It is fundamental to the Group’s | calls on central liquidity by the Group’s | Share capital | | --- | --- | --- | | longer-term strategy that the Directors | business units. A 1-in-200 US and | Details of the structure of the Company’s | | manage and monitor risk, taking into | Caribbean hurricane was assessed to be | share capital and changes in the share | | account all key risks the Group faces, | the most severe liquidity stress. Under | capital during the year are disclosed | | including insurance risks, so that it | this scenario the Group was shown to | in note 22 to the consolidated nancial | | can continue to meet its obligations | have access to sufcient liquidity sources | statements. The ordinary shares of | | to policyholders. The Group is also | to remain above risk appetite, after taking | 6.5p each are the only class of shares | | subject to extensive regulation and | into account the Group’s $600.0 million | presently in issue and carry voting rights. | | supervision including Bermuda | undrawn revolving credit facility. This | There is power under Bye-law 45 of the | | Solvency Capital Requirement. | analysis allows the Board to review and | Company’s Bye-laws for voting rights | | | challenge the risk management strategy | to be suspended if calls on shares are | | Against this background, the Directors | and consider potential mitigating actions. | unpaid. However, there are no nil or | | have assessed the prospects of the | Based on these assessments, the | partly paid shares in issue on which calls | | Group in accordance with Provision 31 | Board conrms that it has a reasonable | could be made. The Bye-laws also allow | | of the UK Corporate Governance Code | expectation that the Group will be able | the Company to investigate interests | | 2018, with reference to the Group’s | to continue in operation and meet its | in its shares and apply restrictions | | current position and prospects, its | liabilities as they fall due over the | including suspending voting rights | | strategy, risk appetite and key risks, | three-year assessment period. Longer | where information is not provided. | | as detailed in the key risks section | term, the Group’s viability is underpinned | No such restrictions are presently in | | on pages 8 to 11 and the risk | by the Group’s strategy of balancing | place. The Company was authorised by | | management section on pages | big-ticket with retail business, market | shareholders at the 2022 Annual General | | 44 to 47, as well as note 3 to the | growth opportunities and underwriting | Meeting (AGM) to purchase in the market | | consolidated nancial statements. | expertise. See pages 6 to 7 for further | up to 10% of the Company’s issued | | | details of the business model and | ordinary shares. No shares have been | | The assessment of the Group’s | longer-term prospects. | bought back under this authority as at | | prospects by the Directors covers the | | the date of this report. | | three years to 2025 and is underpinned | Dividends | | | by management’s 2023-2025 business | An interim dividend of 12.0 cents per | Directors | | plan. It includes projections of the | share was paid on 20September2022 | The names and details of all Directors | | Group’s capital, liquidity and solvency | and, as in previous years, a Scrip | of the Company who served during the | | and reects the Group’s risk prole of | Dividend alternative was offered. The | year and up to the date of this report are | | a portfolio of diversied short-tailed | Board is also proposing payment of | set out on pages 72 to 73. Details of the | | and medium-tailed insurance liabilities. | a nal dividend in respect of the year | Chairman’s professional commitments | | In making the viability statement, the | ended 31December2022 (subject to | are included in his biography on page 72. | 149Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | 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 notied of the following interests in voting rights in its Listing Rules ordinary shares in accordance with DTR 5: % of issued Details of Annual report share capital | | | | as at | | | long-term | on remuneration | | --- | --- | --- | --- | --- | --- | --- | --- | | | | Number | | 31 January | | | | | | of shares | | | | 2023* | incentive schemes | (pages 117 to 118) | | Fidelity Investments 33,069,818 9.54 | | | | | | Allotment of shares | Note 22 to the | | | | | | | | for cash pursuant | consolidated | Capital Research Global Investors 25,821,322 7.4 5 to employee nancial statements *There were 346,546,029 shares in issue (excluding Treasury shares) as at 31 January 2023. share schemes on employee As at 7 March 2023, no changes have been notied to the Company. share schemes (page 213) | The Bye-laws of the Company govern | Board level, in line with the ESG | | --- | --- | | the appointment and replacement of | governance structure outlined on | | Directors. In accordance with the Code, | page 64. | the Directors will submit themselves for re-election at the AGM. The Company also aligns its climate-related activities to the | Details of the Directors’ share ownership | TCFD framework, details of which | | --- | --- | | is also set out on page 120. | can be found on pages 60 to 67. | | Biographical details of the Directors | Power of Directors | | are set out on pages 72 to 73, as are | The powers given to the Directors are | | the reasons why the Board believes | contained in the Company’s Bye-laws | | their contribution is (and continues | and are subject to relevant legislation | | to be) important to the Company’s | and, in certain circumstances (including | | long-term sustainable success. This | in relation to the issuing and buying back | | information will also be set out in the | by the Company of its shares), approval | | circular which will accompany the | by shareholders in a general meeting. | | notice of AGM. | At the AGM in 2022, the Directors were | granted authorities to allot and issue | Major interests in shares | shares and to make market purchases | | --- | --- | | The Company has been notied of the | of shares and intend to seek renewal of | | interests in voting rights in its ordinary | these authorities in 2023. | shares in accordance with DTR 5, | which are outlined in the table above. | Disclosure under LR 9.8.4 of the | | --- | --- | | Any acquisitions or disposals of major | Listing Rules | | shareholdings notied to the Company | The information that fulls 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, | identied in the table above. | hiscoxgroup.com. Annual General Meeting | Political donations and | The notice of the AGM, to be held | | --- | --- | | charitable contributions | on 11 May 2023, will be contained | | The Group made no political | in a separate circular to be sent | | donations during the year (2022:$nil). | to shareholders. The deadline for | | Information concerning the Group’s | submission of proxies is 48 hours | | charitable activities is contained in the | before the meeting. | environmental, social and governance (ESG) section on pages 54 to 59 and at By order of the Board hiscoxgroup.com/responsibility. Marc Wetherhill Company Secretary Climate-related matters | In preparing and authorising 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 discussed | Bermuda | | at all levels of the Company, including | 8 March 2023 | 150 Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | 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 | Hiscox Ltd | | --- | --- | --- | | the maintenance of proper accounting | authorising the responsibility statement | | | records which disclose with reasonable | on behalf of the Board are the Chairman, | Secretary | | accuracy the nancial position of the | Robert Childs, and the Group Chief | Marc Wetherhill | | Group. It is required to ensure that the | Executive Ofcer, Aki Hussain. The | | | nancial statements present a fair view | statements were approved for issue | Registered ofce | | for each nancial period. The Directors | on 8March2023. | Chesney House | | explain in the Annual Report their | | 96 Pitts Bay Road | | responsibility for preparing the Annual | The Directors consider that the Annual | Pembroke HM 08 | | Report and Accounts. | Report and Accounts, taken as a whole, | Bermuda | is fair, balanced and understandable and | We conrm that to the best of | | provides the information necessary for | Registered number | | --- | --- | --- | --- | | our knowledge: | | shareholders to assess the Company’s | 38877 | | s the nancial 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 of the | | Washington House | | | assets, liabilities, nancial position | | 4th Floor, 16 Church Street | | | and prot or loss of the Company | | Hamilton HM 11 | | | and the undertakings included in | | Bermuda | the consolidation taken as a | | whole; and | Stockbrokers | | --- | --- | --- | | s 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 151Hiscox Ltd Report and Accounts 2022 ## Q& ## A: with Markus Niederreiner Managing Director, Hiscox Germany ## Network news ## Through ambitious system changes ## and integration into its partners’ digital ## infrastructure, Hiscox Germany is seizing ## opportunities for growth and efciency. > 152 Hiscox Ltd Report and Accounts 2022 153Hiscox Ltd Report and Accounts 2022 Markus Niederreiner joined Hiscox Germany in September2021, bringingwith him extensive experience of implementing growth strategies and overseeing the digitisation of business processes. enormous potential and ambition the short-term results. We’ve achieved Company has. What makes Hiscox double-digit growth and stable unique, I think, is the way we integrate protability while making necessary ## Q& the expertise and nancial strength of adjustments to our product line and a stock-listed insurance company with delivering important milestones within the entrepreneurial spirit and dynamic of our digital transformation projects. ## A: a real growth company. I love the drive All these achievements were only with Markus Niederreiner of getting better every day, adapting possible with an enormous team effort Managing Director, Hiscox Germany to changing conditions and building a where everybody really went the extra sustainable business for the future. My mile, and it makes me really proud to be role here, together with an ambitious part of such a team. team, is to write the next chapter of | | Hiscox Germany’s growth story. This | Q: With those digital transformation | | --- | --- | --- | | | means preparing our internal set-up | projects, what is it that you’re seeking | | | for protable growth and building an | to achieve? | | | increased footprint in Germany. That’s | A: Our digital transformation initiatives | | | basically the mission, and for me it’s a | are for sure the key enablers for our | | | really exciting one. | growth ambitions and efciency targets. | | Q: Tell us about your professional | | We decided to not only digitise on the | | journey. What experiences did you | Q: How have you found it so far? | surface but to build a new core system, | | bring with you to Hiscox? | A: My predecessor, Robert Dietrich, | which for any insurance company is one | | A: I came over to the UK to do an | was in this role for 15 of his 25 years at | of the most demanding projects you | | MBA at Leeds University before I | Hiscox, and he built this business in | can handle. The implementation and | | started my professional career in the | Germany up to where it is now, before | migration of the new core system was | | nancial services industry. Then after | moving on to his current role as | piloted here in Germany before being | | seven yearsin different leadership | Hiscox Europe Chief Executive Ofcer. | rolled out to other European countries, | | roles for Allianz Germany, seven years | Coming in from outside of Hiscox to take | so that was a big challenge for us. | | in management consulting and ve | on the role was of course a challenge, | But in combination with new front-ends | | yearsasManaging Director for BNP | but I have absolutely loved it. What has | and data architecture, these system | | Paribas in Germany and Austria, Ijoined | helped is that my job is not just to step | changes give us enhanced connectivity, | | Hiscoxin 2021. I would say that in my | into the shoes of a person who did a | easy integrations into existing | | previous roles a recurring starting | fantastic job before me for such a long | partner infrastructures and new | | pointwas adapting to regulatory, | time. My job is to create something that | opportunities to advance our analytics | | technological or market-related | will prepare us for the future. We now | and data-driven business models. They | | change,resulting in the pursuit of | need to take the next step in growing | will help us react quickly to constantly | | growth opportunities. That is something | our business and organisation and I’m | evolving customer and partner | | I’ve brought to my role at Hiscox – | very lucky to be able to build on such | expectations and create new growth | | my experience of transforming and | solid foundations. | opportunities. At the same time, we will | | scaling nancial institutions from very | | be able to break the interdependency of | | different perspectives. | Q: Looking back over the past year, | revenue and expense growth. | what are you most proud of? Q: What was it that attracted you to A: This has been a year of intensive Q: Being the pilot country for the core the Company? transformation, and we’ve also had to system change must have been a A: I was fully attracted to the values, face the challenges of a demanding signicant responsibility. to the culture, to the whole spirit of the market environment, but we’ve been A: There’s a special responsibility in Company. I was able to feel that in every able to deliver important foundations piloting such a project in one country. interview I had. I was also drawn to the for future growth without sacricing The lessons we have learnt mean that 154 Hiscox Ltd Report and Accounts 2022 I was fully attracted to the values, to the culture, to the whole spirit of the Company. I was able to feel that in every interview I had. I was also drawn to the enormous potential and ambition the Company has. What makes Hiscox unique, I think, is the way we integrate the expertise and nancial strength of a stock-listed insurance company with the entrepreneurial spirit and dynamic of a real growth company.” under-served in Germany – or even learn so much from each other. We all unserved. On the product side, we have different strengths. For example, are looking to expand and develop in France and Spain, bancassurance our verticals for certain target groups is already much more mature than it is Our new cyber product for Germany is like employee leasing or e-education in Germany, so we can learn a lot from another example of a pilot. One of the businesses. This will be complemented them about that segment. We have features is an innovation for business by digitising and simplifying our quote meetings on a very regular basis, across interruption that helps to accelerate and bind processes, integrating them geographies and functions. This is also claims regulation for small businesses into existing partner infrastructures and something that makes Hiscox unique and mitigate surge risk scenarios.” improving the underlying data exchange. for me – the culture and the aspiration The objective is to make it easy for to create something greater together. our partners, and to offer also more standardised products to their smaller Q: Outside of work, what gives mass clients. you energy? A: My family, for sure. I became a father A concrete example for new business for the rst time last year. I have a small models arising in this context is our daughter who gives me a lot of energy, partnership with an ecosystem for the of course! And the other part is that not every country following us will have creator – by which we mean content living in Bavaria, we are quite close to to go through the same tough journey. As creators, inuencers – and the freelancer the mountains. The mountains are the well as being able to share those lessons, industry. This is an exponentially growing perfect place to recover: skiing in winter, the good thing about the pan-European target group, completely within our hiking in summer. This is the privilege of set-up here is that it helps us leverage appetite, but difcult to access and often living in Munich. You’re in a city but you’re return on investment and gives us all with a low sensitivity to risk exposure. Our close to the lakes and the mountains, and opportunities to take on ambitious digital approach allows us to integrate insurance for me this is the perfect environment. transformation projects like this that we solutions for creators and freelancers would never be able to tackle alone. with other products and services like factoring solutions or business loans, Our new cyber product for Germany is which is a really compelling proposition another example of a pilot. One of the for this target group. These new sales features is an innovation for business partnerships mean we need the ability interruption that helps to accelerate to deliver modular products and easy claims regulation for small businesses processes, rather than individual and mitigate surge risk scenarios. With case-by-case underwriting. This requires that, we were not only introducing a a mindset shift as well as a logistical one, market-leading solution for Germany, but it’s an approach which holds a lot of we were implementing a pilot for promise for us. other European countries, and that is very exciting. Q: How close is your relationship with the other Hiscox Europe ofces? Q: Where do you see the biggest A: It is very close. Compared to other opportunities for growth? geographies like the UK or the USA, A: Beside building on our strong position we have this diversication of different within our private and commercial countries, different geographies, different insurance lines, we see enormous cultures and different market mechanics, potential in SME commercial insurance, which can sometimes be a challenge. as major parts of this segment are But this also gives us an opportunity to 155Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | 156 Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | ## Financial summary 157Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | 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 nancial statements Our audit approach Overview Our opinion In our opinion, the consolidated nancial statements present fairly, in all material respects, the consolidated nancial position of Hiscox Ltd (‘the Company’) and its subsidiaries (together ‘the Group’) as at 31December2022, and their consolidated Materiality nancial performance and their consolidated cash ows for the year then ended in accordance with UK-adopted international accounting standards. Group What we have audited scoping The Group’s consolidated nancial statements comprise: A the consolidated income statement for the year ended 31December2022; Key audit A the consolidated statement of comprehensive income matters for the year ended 31December2022; A the consolidated balance sheet as at 31December2022; A the consolidated statement of changes in equity for the year then ended; A the consolidated statement of cash ows for the year then ended; and A Overall group materiality: $37.5 million, which represents A the notes to the consolidated nancial statements, approximately 0.8% of gross premiums written for the which include signicant accounting policies and year ended 31 December 2022. other explanatory information. Our audit comprised: Basis for opinion A full scope audit procedures over four components; We conducted our audit in accordance with International A for certain other components, audit procedures over Standards on Auditing (ISAs). Our responsibilities under specied nancial statement line item balances; those standards are further described in the ‘auditor’s A for the remaining components that were not responsibilities for the audit of the consolidated nancial inconsequential, analytical procedures on their statements’ section of our report. nancial information. We believe that the audit evidence we have obtained is A Valuation of gross claims liabilities. sufcient and appropriate to provide a basis for our opinion. A Valuation of reinsurance claims recoverable. A Disclosure of the expected impact of IFRS 17. Independence We are independent of the Group in accordance with the International Code of Ethics for Professional Accountants (including International Independence Standards) issued by the International Ethics Standards Board for Accountants (IESBA Code) and the ethical requirements of the Chartered Professional Accountants of Bermuda Rules of Professional Conduct (CPA Bermuda Rules) that are relevant to our audit of the consolidated nancial statements in Bermuda. We have fullled our other ethical responsibilities in accordance with the IESBA Code and the ethical requirements of the CPA Bermuda Rules. 158 Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Independent auditor’s report In establishing the overall approach to the Group audit a determination was made of the type of work that needed to be performed at the components by the Group engagement team, or by the component audit teams within the PwC United Kingdom, PwC United States and PwC Bermuda rms. A determination was made of the level of involvement of the Group engagement team that was necessary in the audit work at those components to be able to conclude whether sufcient 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 ndings submitted by the component auditors. This together with additional procedures performed as described above, gave us the evidence we needed for our opinion on the consolidated nancial statements as a whole. Audit scope As part of designing our audit, the risks of material The impact of climate risk on our audit misstatement in the consolidated nancial statements were As part of our audit, enquiries were made of management assessed and materiality was determined. In particular, (both within and outside of the Group’s nance function) consideration was given to where management made to understand the process management adopted to subjective judgements; for example, in respect of signicant assess the extent of the potential impact of climate risk accounting estimates that involved making assumptions and on the Group’s consolidated nancial statements and support considering future events that are inherently uncertain. As in the disclosures made within the notes to the consolidated all of our audits, the risk of management override of internal nancial statements. The key areas where management controls was addressed, including, among other matters, has evaluated that climate risk has a potential to impact consideration of whether there was evidence of bias that the business are in relation to underwriting risk, nancial risk, represented a risk of material misstatement due to fraud. and regulatory, legal, and reputational risk. Management considers that the impact of climate change does not give Tailoring of Group audit scope rise to a material nancial statement impact. The scope of our audit was tailored in order to perform sufcient work to enable us to provide an opinion on the Our knowledge of the Group was applied to evaluate consolidated nancial statements as a whole, taking into management’s assessment of the impact on the account the structure of the Group, the accounting processes consolidated nancial statements. An evaluation was and controls, and the industry in which the Group operates. performed of the completeness of management’s assessment of climate change risk under the categories The Group is structured into four segments (see note 4 to of physical risk, transition risk, and liability risk and how the consolidated nancial statements) and is a consolidation these may affect the consolidated nancial statements of over 50 separate legal entities. The Group is a global and the audit procedures performed. specialist insurer and reinsurer, and its operations primarily consist of the legal entity operations in the United Kingdom, As part of this, our audit procedures included: Europe, the United States and Bermuda. A reading the minutes of meetings of the Group’s Sustainability Steering Committee; A full scope audit was performed for four components A reading submissions to regulators; located in the United Kingdom and Bermuda. Financial A reading the Group’s climate report 2022; and statement line item audit procedures were also performed A considering the Group’s memberships, over components in the United Kingdom, the United States accreditations and public commitments. and Bermuda. Taken together this work provided over 80% coverage of the Group’s gross premiums written and over The risks of material misstatement to the consolidated 80% of the Group’s total assets. nancial statements as a result of climate change were assessed and it was concluded that for the year ended The four full scope audit components are: (i) Hiscox Dedicated 31December2022, there was no impact on the key Corporate Member Syndicate No. 33, (ii) Hiscox Dedicated audit matters or the assessment of the risks of Corporate Member Syndicate No. 3624, (iii) Hiscox Insurance material misstatement. Company Limited, and (iv) the parent company, Hiscox Ltd (including consolidation). For certain other components, Finally, the consistency of the disclosures in relation to account balances were identied which were considered climate change (including the disclosures in the Task to be signicant in size or audit risk at the nancial statement Force on Climate-Related Financial Disclosures (TCFD) line-item level in relation to the consolidated nancial section) within the Report and Accounts was considered statements, and nancial statement line item audit procedures against the consolidated nancial statements and our were performed over these specied balances. Analytical knowledge obtained from our audit including challenging procedures over the nancial information of the remaining the disclosures given in the narrative reporting within the components that were not inconsequential were performed. consolidated nancial statements. 159Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Independent auditor’s report Materiality Performance materiality is used to reduce to an appropriately The scope of our audit was inuenced by our application low level the probability that the aggregate of uncorrected of materiality. An audit is designed to obtain reasonable and undetected misstatements exceeds overall materiality. assurance whether the consolidated nancial statements Specically, performance materiality is used in determining are free from material misstatement. Misstatements may the scope of the audit and the nature and extent of testing of arise due to fraud or error. They are considered material if, account balances, classes of transactions and disclosures, individually or in aggregate, they could reasonably be for example in determining sample sizes. The performance expected to inuence the economic decisions of users materiality applied was 75% of overall materiality, amounting taken on the basis of the consolidated nancial statements. to $28 million for the consolidated nancial statements. Based on our professional judgement, certain quantitative A number of factors were considered in the determination of thresholds for materiality were determined, including the performance materiality including: the history of misstatements, overall Group materiality for the consolidated nancial risk assessment and aggregation risk and the effectiveness statements as a whole, as set out in the table below. These, of controls – we concluded that 75% of overall materiality together with qualitative considerations, helped to determine was appropriate. the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, We agreed with the Audit Committee that we would report both individually and in aggregate, on the consolidated nancial to them misstatements identied during our audit above statements as a whole. $1.9 million, as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons. Materiality Key audit matters Key audit matters are those matters that, in the auditors’ professional judgement, were of most signicance in the audit of the consolidated nancial statements of the current period and include the most signicant assessed risks of material Overall Group materiality $37.5 million. misstatement (whether or not due to fraud) identied by the auditors, including those which had the greatest effect on: | How we determined it | Approximately 0.8% of gross | the overall audit strategy; the allocation of resources in the | | --- | --- | --- | | | premiums written for the year | audit; and directing the efforts of the engagement team. | | | ended 31December2022. | These matters, and any comments we make on the results | of our procedures thereon, were addressed in the context of Rationale for the materiality In determining materiality, our audit of the consolidated nancial statements as a whole, benchmark applied nancial metrics believed and in forming our opinion thereon, and we do not provide a to be relevant to the primary separate opinion on these matters. users of the consolidated nancial statements were This is not a complete list of all risks identied by our audit. considered. We concluded | a premium based metric | Disclosure of the expected impact of IFRS 17 is a new key audit | | --- | --- | | was the most relevant to | matter this year. Otherwise, the key audit matters below are | | the users. | consistent with last year. | A premium based metric provides a good representation of the size and complexity of the business and it is not distorted by insured catastrophe events to which the Group is exposed, or the levels of external reinsurance purchased by the Group. 160 Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Independent auditor’s report Key audit matters Key audit matter How our audit addressed the key audit matter 1. Valuation of gross claims liabilities Procedures were performed to obtain an understanding of, evaluate and test the design and operational effectiveness of, Refer to notes 2.13, 2.21 and 23 to the consolidated nancial key controls in place in respect of the valuation of insurance statements for disclosures of related accounting policies claims liabilities and balances. In addition, the following procedures were performed: As at 31 December 2022 gross claims liabilities comprised A tested the completeness and accuracy of premiums $2.5 billion of claims reported and claims adjustment expenses, data used in the actuarial projections for IBNR; and $4.5 billion of claims incurred but not reported (IBNR). A tested the completeness and accuracy of claims Insurance claims liabilities are inherently uncertain and contain data used in the actuarial projections for IBNR, material estimates, the most subjective element being IBNR. the establishment of large loss reserves, and the Management bases the estimate of IBNR on the estimated determination of reported but not settled claims; ultimate cost of all unsettled claims, inclusive of the related A tested the completeness and accuracy of policy claims handling costs. There is also uncertainty in elements data, where applicable, used to establish large loss of the reported but not settled claims including those related reserves; and to Covid-19. A reconciled the gross claims liabilities from the underlying nancial records to the consolidated For IBNR, the methodologies and assumptions used to nancial statements. estimate insurance liabilities involve a signicant degree of judgement. As a result, this was an area of focus as In performing our work over the valuation of IBNR PwC the valuation can be materially impacted by numerous actuarial specialists were used, where appropriate. factors including: Procedures included the following: A the underlying volatility attached to estimates for A development of independent point estimates for certain classes of business, where small changes in classes of business considered to be higher risk, assumptions can lead to large changes in the levels particularly focusing on the largest and most uncertain of the estimate held, including the change to reserving classes, as well as for certain other classes to introduce classes implemented this year; unpredictability, as at 31 August 2022 and performed A the risk of inappropriate assumptions used in determining a roll-forward test to 31 December 2022; current year estimates. Given that limited data is available, A tested specic claims reserves including those especially for ‘long-tailed’ classes of business, there is a impacted by Covid-19, natural catastrophes and other greater reliance on expert judgement in management’s large claims by understanding and challenging the estimates; and methodology and assumptions used by management A the risk of application of inappropriate assumptions and where available comparing to data reported in respect of specic claims reserves for natural by counterparties, industry benchmarks and other catastrophes and other large claims losses, including publicly available information; inwards reinsurance classes of business exposed to A performed key-indicator testing procedures over the claims and potential claims arising from Covid-19. There remaining classes of business to evaluate gross is signicant judgement involved in these loss estimates, IBNR reserves; particularly as they are often based on limited data. A evaluated the appropriateness of the booked gross loss reserve margin, taking into account estimation uncertainty inherent in the underlying insurance business; and A inspected the supporting evidence produced by management on changes made to reserving classes. For those classes subject to independent re-projection, assessed the appropriateness of the loss reserving classes. The results of our procedures indicated that the valuation of gross claims liabilities was supported by the evidence obtained. 161Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | 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 Procedures were performed to obtain an understanding of, evaluate and test the design and operational effectiveness of Refer to notes 2.13, 2.21 and 23 to the consolidated nancial key controls in place in respect of the valuation of reinsurance statements for disclosures of related accounting policies claims recoverable. and balances. In addition, the following procedures were performed: The valuation of the reinsurance claims recoverable is A tested the accuracy of application of reinsurance uncertain due to the signicant degree of judgement contract terms; applied in valuing the associated gross claims liabilities that A tested the netting down of reinsurance on gross paid, have been reinsured, the complexity of the application and outstanding, and specic claims reserves; coverage of the reinsurance programme, and the willingness A for those classes of business selected for independent and ability of the reinsurers to pay. As at 31 December 2022 projections on a gross basis, PwC actuarial specialists claims recoverable are $3.4 billion in the consolidated nancial were used to develop independent point estimates for statements. For the year ended 31 December 2022, there the associated reinsurer’s share of IBNR loss reserves; are additional circumstances contributing to the degree A for the remaining classes of business where PwC of uncertainty for elements of reinsurance claims recoverable actuarial specialists performed key-indicator testing on as follows: a gross basis, they performed testing on the associated A reinsurance recoverables associated with policies reinsurer’s share of IBNR loss reserves; and affected by Covid-19, as cedants and reinsurers A evaluated management’s assessment of risk transfer continue to evaluate how losses will be applied to for each of the LPT contracts executed in the year using (re)insurance contracts; and our actuarial specialists. A the execution of legacy portfolio transaction (LPT) contracts with external counterparties during the year. The results of our procedures indicated that the valuation Such transactions require judgement on the accounting of reinsurance claims recoverable was supported by the for the contracts, in particular the degree of risk transfer evidence obtained. present in the reinsurance contracts. 162 Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Independent auditor’s report Key audit matters Key audit matter How our audit addressed the key audit matter 3. Disclosure of the expected impact of IFRS 17 Procedures were performed to obtain an understanding of and evaluate the design of controls in place over the disclosed Refer to note 2.1 to the consolidated nancial statements. expected transition impact of IFRS 17, including the calculation of the impact on opening equity as at 1 January 2022. On 1 January 2023, the Group transitioned to International Financial Reporting Standard (IFRS) 17 Insurance Contracts In addition, the following procedures were performed: which replaced IFRS 4. The expected transition impact, A assessed the signicant judgements used by including the impact on opening equity as at 1 January 2022, management to determine the accounting policies is disclosed in note 2.1 to the consolidated nancial statements along with the compliance of those policies with in accordance with International Accounting Standard (IAS) 8. IFRS 17. This included judgements used to determine Disclosures in these 2022 consolidated nancial statements use of the Premium Allocation Approach (PAA) are intended to provide users with an understanding of the measurement model, and the policy applied for expected impact of the new standard ahead of implementation, the risk adjustment assumption; and as a result are more limited than the disclosures to be A evaluated the appropriateness of management’s PAA included in the annual and interim 2023 consolidated eligibility analysis, including testing the completeness nancial statements. and accuracy of supporting data, evaluating the assumptions used and scenarios applied, and Due to the signicance of the changes introduced by the testing the accuracy of models used; standard on opening equity (1 January 2022) upon transition, A evaluated the appropriateness of the methodology the disclosure of the expected impact of IFRS 17 in the used to determine discount rates and independently 31 December 2022 consolidated nancial statements recalculated the impact of discounting on opening was determined to be an area of focus. equity at 1 January 2022; A tested the mathematical accuracy and completeness The Group has evaluated the requirements of IFRS 17 and of the supporting calculations and adjustments exercised judgement to develop accounting policies, and used to determine the impact on opening equity at select assumptions. In particular, the determination of 1 January 2022; and the measurement model to apply under the standard, the A assessed the appropriateness of the quantitative determination of the risk adjustment assumption, and the and qualitative disclosures required by IAS 8. determination of the discount rate methodology, were deemed to be signicant to the overall impact of transition. The results of our procedures indicated that the disclosed expected impact of IFRS 17 and the disclosures made are The expected impact on opening equity as at 1 January 2022 supported by the evidence obtained. has been calculated by management by adjusting the reported position on an IFRS 4 basis, using a combination of models developed for transition. 163Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Independent auditor’s report Other information is sufcient and appropriate to provide a basis for our Management is responsible for the other information. The other opinion. The risk of not detecting a material misstatement information comprises the Report and Accounts (but does resulting from fraud is higher than for one resulting from not include the consolidated nancial statements and our error, as fraud may involve collusion, forgery, intentional auditor’s report thereon). The other information also includes omissions, misrepresentations, or the override of reporting based on the TCFD recommendations. Our opinion internal control; on the consolidated nancial statements does not cover the A obtain an understanding of internal control relevant to other 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 nancial Group’s internal controls; statements, our responsibility is to read the other information A evaluate the appropriateness of accounting policies identied 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; nancial statements or our knowledge obtained in the audit, A conclude on the appropriateness of management’s use or otherwise appears to be materially misstated. of the going concern basis of accounting and, based on the audit evidence obtained, whether a material If, based on the work we have performed, we conclude that uncertainty exists related to events or conditions that may there is a material misstatement of this other information, we cast signicant doubt on the Group’s ability to continue are required to report that fact. We have nothing to report as a going concern. If we conclude that a material in this regard. uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the Responsibilities of management and those charged with consolidated nancial statements or, if such disclosures governance for the consolidated nancial statements are inadequate, to modify our opinion. Our conclusions Management is responsible for the preparation and fair are based on the audit evidence obtained up to the presentation of the consolidated nancial statements in date of our auditor’s report. However, future events or accordance with UK-adopted international accounting conditions may cause the Group to cease to continue standards and for such internal control as management as a going concern; determines is necessary to enable the preparation of A evaluate the overall presentation, structure and content consolidated nancial statements that are free from of the consolidated nancial statements, including the material misstatement, whether due to fraud or error. disclosures, and whether the consolidated nancial statements represent the underlying transactions and In preparing the consolidated nancial statements, events in a manner that achieves fair presentation; and management is responsible for assessing the Group’s A obtain sufcient appropriate audit evidence regarding ability to continue as a going concern, disclosing, as the nancial 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 nancial 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 We communicate with those charged with governance overseeing the Group’s nancial reporting process. regarding, among other matters, the planned scope and timing of the audit and signicant audit ndings, including Auditor’s responsibilities for the audit of the consolidated any signicant deciencies in internal control that we identify nancial statements during our audit. Our objectives are to obtain reasonable assurance about whether the consolidated nancial 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 inuence 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 nancial statements. signicance in the audit of the consolidated nancial 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 professional judgement and maintain professional scepticism or regulation precludes public disclosure about the matter or throughout the audit. We also: when, in extremely rare circumstances, we determine that a A identify and assess the risks of material misstatement matter should not be communicated in our report because of the consolidated nancial statements, whether due the adverse consequences of doing so would reasonably to fraud or error, design and perform audit procedures be expected to outweigh the public interest benets of responsive to those risks, and obtain audit evidence that such communication. 164 Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Independent auditor’s report Report on other legal and regulatory requirements corporate governance statement is materially consistent with Directors’ remuneration the consolidated nancial statements and our knowledge The Company voluntarily prepares a report on Directors’ obtained during the audit: remuneration in accordance with the provisions of the UK A the Directors’ statement that they consider the Report Companies Act 2006. The Directors have requested an audit and Accounts, taken as a whole, is fair, balanced and of the part of the report on Directors’ remuneration specied by understandable, and provides the information necessary the UK Companies Act 2006 to be audited as if the Company for the shareholders to assess the Group’s position, were a UK-registered company. performance, business model and strategy; A the section of the Report and Accounts that describes In our opinion, the part of the report on Directors’ remuneration the review of effectiveness of risk management and to be audited has been properly prepared in accordance with internal control systems; and the UK Companies Act 2006. A the section of the Report and Accounts describing the work of the audit committee. Corporate governance statement The Directors’ statements in relation to going concern, There is nothing to report in respect of our responsibility to longer-term viability and that part of the corporate governance report when the Directors’ statement relating to the Company’s statement relating to the Company’s compliance with the compliance with the Code does not properly disclose a provisions of the UK Corporate Governance Code, which the departure from a relevant provision of the Code specied Listing Rules of the Financial Conduct Authority specify for under the Listing Rules for review by the auditors. review by auditors of premium listed companies has been reviewed. Our additional responsibilities with respect to the Other matter corporate governance statement as other information are As required by the Financial Conduct Authority Disclosure described in the ‘other information’ section of this report. Guidance and Transparency Rule 4.1.14R, these consolidated nancial statements will form part of the ESEF-prepared annual Based on the work undertaken as part of our audit, it was nancial report led on the National Storage Mechanism of concluded that each of the following elements of the the Financial Conduct Authority in accordance with the ESEF corporate governance statement is materially consistent Regulatory Technical Standard (ESEF RTS). This auditor’s with the consolidated nancial statements and our knowledge report provides no assurance over whether the annual nancial obtained during the audit, and there is nothing material to add report will be prepared using the single electronic format or draw attention to in relation to: specied in the ESEF RTS. A the Directors’ conrmation that they have carried out a robust assessment of the emerging and principal risks; The engagement partner on the audit resulting in this A the disclosures in the Report and Accounts that describe independent auditor’s report is Marisa Savage. those principal risks, what procedures are in place to identify emerging risks and an explanation of how these are being managed or mitigated; A the Directors’ statement in the consolidated nancial PricewaterhouseCoopers Ltd. statements about whether they considered it appropriate Chartered Professional Accountants to adopt the going concern basis of accounting in Bermuda preparing them, and their identication of any material 8 March 2023 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 nancial statements; A the Directors’ explanation as to their assessment of the Group’s prospects, the period this assessment covers and why the period is appropriate; and A the Directors’ statement as to whether they have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the period of its assessment, including any related disclosures drawing attention to any necessary qualications or assumptions. The review of the Directors’ statement regarding the longer-term viability of the Group was substantially less in scope than an audit and only consisted of making inquiries and considering the Directors’ process supporting their statements; checking that the statements are in alignment with the relevant provisions of the Code; and considering whether the statement is consistent with the consolidated nancial statements and our knowledge and understanding of the Group and its environment obtained in the course of the audit. In addition, based on the work undertaken as part of our audit, it was concluded that each of the following elements of the 165Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | ## Consolidated income statement 2022 2021 For the year ended 31 December 2022 Note $m $m Income Gross premiums written 4 4,424.9 4,2 69.2 Outward reinsurance premiums 4, 23.2 (1 ,444.9) (1, 3 14 . 2) Net premiums written 4 2,9 8 0. 0 2, 9 55 .0 Gross premiums earned 4 , 313 . 8 4 , 24 6 . 9 Premiums ceded to reinsurers (1 ,385.6) (1, 3 2 7. 0 ) Net premiums earned 4, 23.2 2, 92 8. 2 2 , 9 19 . 9 Investment result 4, 7 (1 8 7. 3) 51. 2 Other income 4, 9 46.5 5 6.8 Total income 2,787.4 3 , 0 2 7. 9 Expenses Claims and claim adjustment expenses 23.2 (2 ,11 0 .1) (2, 1 85. 5) Reinsurance recoveries 23.2 7 8 1. 8 7 5 5 .1 Claims and claim adjustment expenses, net of reinsurance 4, 23.2 (1 ,32 8.3) (1, 4 3 0 . 4) Expenses for the acquisition of insurance contracts 15 (1, 0 15 . 8) (1 , 0 17. 9 ) Reinsurance commission income 15 26 0.3 283 .2 Operational expenses 4, 9 (6 42. 3) (6 2 2 .7) Net foreign exchange gains 30 .6 0 .7 Total expenses (2,695.5) (2 , 7 8 7. 1) Total income less expenses 91. 9 24 0 . 8 Finance costs 4, 10 (4 8 .1) (50.8) Share of prot of associates after tax 4, 14 0.9 0.8 Prot before tax 4 4 .7 19 0 . 8 Tax expense 25 (3.0) (1. 3) Prot for the year (all attributable to owners of the Company) 41. 7 18 9 . 5 Earnings per share on prot attributable to owners of the Company Basic 28 12 .1¢ 5 5.3¢ Diluted 28 12. 0¢ 5 4 . 7¢ ## Consolidated statement of comprehensive income 2022 2021 For the year ended 31 December 2022 Note $m $m Prot for the year 41. 7 18 9 . 5 Other comprehensive income Items that will not be reclassied to the income statement: Remeasurements of the net dened benet pension scheme 27 3 4.9 3 1 .6 Income tax effect ( 7. 7 ) (3.4) 2 7. 2 28.2 Items that may be reclassied subsequently to the income statement: Exchange losses on translating foreign operations (10 0 . 2) (1 8.5) (10 0 . 2) (1 8.5) Other comprehensive income net of tax (73.0) 9 .7 Total comprehensive income for the year (all attributable to owners of the Company) (3 1. 3) 19 9 . 2 The notes on pages 170 to 230 are an integral part of these consolidated nancial statements. 166 Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | ## Consolidated balance sheet 2022 2021 At 31 December 2022 Note $m $m Assets Employee retirement benet asset 27 20 .9 – Goodwill and intangible assets 12 320.4 3 1 3 .1 Property, plant and equipment 13 1 3 3 .1 9 0 .4 Investments in associates 14 5 .6 5 .7 Deferred tax assets 26 5 3 .7 6 7. 3 Deferred acquisition costs 15 4 5 0 .1 436. 9 Financial assets carried at fair value 17 5 , 8 1 2 .1 6 , 0 41. 3 Reinsurance assets 16, 23 3, 89 9.8 3,9 0 8.0 Loans and receivables including insurance receivables 18 1, 6 7 1. 6 1, 6 7 8 . 2 Current tax assets 4.0 4.9 Cash and cash equivalents 21 1 ,350.9 1, 3 0 0 . 7 Total assets 13 ,7 2 2 . 2 1 3,846.5 Equity and liabilities Shareholders’ equity Share capital 22 3 8 .7 3 8 .7 Share premium 22 5 1 7. 6 516 . 8 Contributed surplus 22 18 4 . 0 18 4 . 0 Currency translation reserve (3 89. 5) (28 9.3) Retained earnings 2,0 6 4.8 2,0 8 8 .0 Equity attributable to owners of the Company 2 , 41 5 . 6 2 ,538.2 Non-controlling interest 1 .1 1 .1 Total equity 2 , 41 6 . 7 2, 5 3 9. 3 Employee retirement benet obligations 27 – 3 5 .1 Deferred tax liabilities 26 0. 2 0 .1 Insurance liabilities 23 8,836.6 8, 868. 4 Financial liabilities 17 6 36 .2 74 6 . 7 Current tax liabilities 1 4 .1 2 1. 3 Trade and other payables 24 1, 8 18 . 4 1,635.6 Total liabilities 1 1 ,305.5 11, 3 0 7. 2 Total equity and liabilities 13 ,7 2 2 . 2 13,846.5 The notes on pages 170 to 230 are an integral part of these consolidated nancial statements. The consolidated nancial statements were approved by the Board of Directors on 8March2023 and signed on its behalf by: Aki Hussain Group Chief Executive Ofcer Paul Cooper Group Chief Financial Ofcer 167Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | 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 2021 3 8 .7 5 1 6.5 18 4 . 0 (270.8) 1 ,884 .4 2,3 52. 8 1 .1 2 ,353. 9 Prot for the year (all attributable to owners of the Company) – – – – 18 9 . 5 18 9 . 5 – 18 9 . 5 Other comprehensive income net of tax (all attributable to owners of the Company) – – – (1 8.5) 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 3 8 .7 516 . 8 18 4 . 0 (28 9. 3) 2, 0 8 8 .0 2 ,538.2 1 .1 2,5 3 9 .3 Prot for the year (all attributable to owners of the Company) – – – – 41 .7 41. 7 – 41. 7 Other comprehensive income net of tax (all attributable to owners of the Company) – – – (10 0 . 2) 2 7. 2 (73.0) – (73 .0) Employee share options: Equity settled share-based payments – – – – 2 7. 2 2 7. 2 – 2 7. 2 Proceeds from shares issued 22 – 0 .1 – – – 0 .1 – 0 .1 Deferred and current tax on employee share options – – – – 1. 2 1. 2 – 1. 2 Shares issued in relation to Scrip Dividend 22, 29 – 0 .7 – – – 0.7 – 0.7 Dividends paid to owners of the Company 29 – – – – (12 0 . 5) (12 0 . 5) – (12 0 . 5) Balance at 31 December 2022 3 8 .7 5 1 7. 6 18 4 . 0 (3 89. 5) 2,0 6 4. 8 2, 415 . 6 1 .1 2 , 41 6 . 7 The notes on pages 170 to 230 are an integral part of these consolidated nancial statements. 168 Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | ## Consolidated statement of cash ows 2022 2021 For the year ended 31 December 2022 Note $m $m Prot before tax 4 4 .7 19 0 . 8 Adjustments for: Net foreign exchange gains (30.6) (0 .7) Interest and equity dividend income 7 (11 9 . 5) (8 8 .1) Interest expense 10 4 8 .1 50. 8 Net fair value losses on nancial assets 7 254 . 2 5 7. 9 Depreciation, amortisation and impairment 9, 12, 13 6 0.0 58.3 Charges in respect of share-based payments 9, 22 2 7. 2 24 . 0 Realised loss/(gain) on sale of subsidiary undertaking, intangible assets and property, plant and equipment 0 .1 (6.5) Changes in operational assets and liabilities: Insurance and reinsurance contracts 141. 6 (2 6 4.2) Financial assets carried at fair value (12 8 . 3) (30.0) Financial liabilities carried at fair value – (0 .4) Financial liabilities carried at amortised cost 0.9 0.7 Other assets and liabilities 9. 2 (6 .7) Cash paid to the pension fund 27 (13 . 5) – Interest received 1 0 9. 1 9 0.5 Equity dividends received 3.9 1. 9 Interest paid (3 1. 3) (4 9. 6) Current tax paid (2.4) (1 2 .1) Net cash ows from operating activities 37 3. 4 16 . 6 Cash ows from the sale of subsidiaries – 2 1. 4 Purchase of property, plant and equipment (20.9) (5.4) Proceeds from the sale of property, plant and equipment 0.9 0. 2 Purchase of intangible assets (6 1. 9) (53.5) Proceeds from the sale of intangible assets – 0 .7 Net cash used in investing activities (8 1. 9) (3 6.6) Proceeds from the issue of ordinary shares 22 0 .1 0 .1 Proceeds from the issue of loan notes 17 279. 1 – Distributions made to owners of the Company 22, 29 (11 9 . 8) (3 9. 2) Repayment of borrowings 17 (336.6) (19 5 . 7) Principal elements of lease payments (13 .7) (11 . 4) Net cash ows used in nancing activities (19 0 . 9) (24 6 . 2) Net increase/(decrease) in cash and cash equivalents 10 0 . 6 (2 6 6. 2) Cash and cash equivalents at 1 January 1, 3 0 0 . 7 1, 5 7 7. 2 Net increase/(decrease) in cash and cash equivalents 10 0 . 6 (2 6 6. 2) Effect of exchange rate uctuations on cash and cash equivalents (5 0.4) (10 . 3) Cash and cash equivalents at 31 December 21 1 ,350.9 1, 3 0 0 . 7 The purchase, maturity and disposal of nancial assets and liabilities, including derivatives, is part of the Group’s insurance activities and is therefore classied as an operating cash ow. Included within cash and cash equivalents held by the Group are balances totalling $1 7 8million (2021:$2 1 5million) not available for immediate use by the Group outside of the Lloyd’s syndicate within which they are held. Additionally, $89million (2021:$7million) is pledged cash held against Funds at Lloyd’s, and $0.5million (2021:$0.4million) held within trust funds against reinsurance arrangements. The notes on pages 170 to 230 are an integral part of these consolidated nancial statements. 169Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | 170 Hiscox Ltd Report and Accounts 2022 Notes to the consolidated nancial s financial statements 1 General information The Hiscox Group, which is headquartered in Hamilton, Bermuda, comprises Hiscox Ltd (the parent company, referred to herein as the ‘Company’) and its subsidiaries (collectively, the ‘Hiscox Group’ or the ‘Group’). For the current period the Group provided insurance and reinsurance services to its clients worldwide. It has operations in Bermuda, the UK, Europe, Asia and the USA and currently has over 3,000 staff. The Company is registered and domiciled in Bermuda and its ordinary shares are listed on the London Stock Exchange. The address of its registered ofce is: ce is: Chesney House, 96 Pitts Bay Road, Pembroke HM 08, Bermuda. 2 Basis of preparation The The financial statements of the Group have been prepared in accordance with UK-adopted International Accounting Standards, and Section 4.1 of the Disclosure and Transparency Rules and the Listing Rules, both issued by the Financial Conduct Authority (FCA) and in accordance with the provisions of the Bermuda Companies Act 1981. The consolidated naidated financial statements have been prepared under the historical cost convention, except for pension scheme assets included in the measurement of the employee retirement benet obligairement benefit obligation which are determined using actuarial analysis, and certain tain financial instruments including derivative instruments, which are measured at fair value. The consolidated naidated financial statements have been prepared on a going concern basis. In adopting the going concern basis, the Board has reviewed the Group’s current and forecast solvency and liquidity positions for the next 12 months and beyond. As part of the consideration of the appropriateness of adopting the going concern basis, the Directors use scenario analysis and stress testing to assess the robustness of the Group’s solvency and liquidity positions. In undertaking this analysis, no material uncertainty in relation to going concern has been identieentified, due to the Group’s strong capital and liquidity positions providing resilience to shocks, underpinned by the Group’s approach to risk management described in note 3. After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence over a period of at least 12 months from the date of this report. For this reason, the Group continues to adopt the going concern basis in preparing the consolidated nlidated financial statements. In accordance with IFRS 4 Insurance Contracts, the Group continues to apply the existing accounting policies that were applied prior to the adoption of IFRS (‘grandfathered’) or the date of the acquisition of the entity. IFRS accounting for insurance contracts in UK companies was grandfathered at the date of transition to IFRS and determined in accordance with accounting principles generally accepted in the UK. Items included in the nad in the financial statements of each of the Group’s entities are measured in the currency of the primary economic environment in which that entity operates (the functional currency). The consolidated nancial sted financial statements are presented in US Dollars millions ($m) and rounded to the nearest hundred thousand Dollars, unless otherwise stated. The balance sheet of the Group is presented in order of increasing liquidity. All amounts presented in the income statement and statement of comprehensive income relate to continuing operations. The The financial statements were approved for issue by the Board of Directors on 8n 8 MarchMarch 2023. 2.1 Signica1 Significant accounting policies The principal accounting policies applied in the preparation of these consolidated naidated financial statements are set out below. The most critical individual components of these nancialf these financial statements that involve the highest degree of judgement or signicant assumpor significant assumptions and estimations are identied are identified in note 2.21. Except as described below and overleaf, the accounting policies adopted are consistent with those of the previous nancial yearfinancial year. (a) New accounting standards, interpretations and amendments to published standards New standards, amendments to standards and interpretations, as adopted by the UK, that are effective for annual periods beginning on 1 January 2022 have been applied in preparing these consolidated nalidated financial statements and had no material impact on the Group. | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Notes to the consolidated nancial statements 171Hiscox Ltd Report and Accounts 2022 A IFRS 3 References to the Conceptual Framework (Amendments to IFRS 3) A IAS 16 Proceeds before intended use and annual improvements A IAS 37 Onerous contracts – cost of fulllifilling a contract (Amendments to IAS 37) (b) Future accounting developments The following new standards, and amendments to standards, are effective for annual periods beginning after 11 Januaryy 2022 and have not been applied in preparing these nance financial statements: A Initial application of IFRS 17 and IFRS 9 – comparative information This narrow-scope amendment will not be used by the Group. A Amendments to IAS 1, IAS 8 and IAS 12 effective from 1 January 2023. A IFRS 9 Financial Instruments This standard incorporates new classicsification and measurement requirements for nannts for financial assets, the introduction of an expected credit loss impairment model which will replace the incurred loss model of IAS 39 and new hedge accounting requirements. The Group satisep satisfies the criteria set out in IFRS 4 Insurance Contracts for the temporary exemption from IFRS 9. At 311 Decemberber 2015 (the date speciecified by IFRS 4), the carrying value of the Group’s liabilities connected with insurance comprised over 90% of the total liabilities. These include signicant ins These include significant insurance liabilities; the subordinated debt as this debt counts towards the Group’s regulatory and rating agency capital requirements; and creditors arising from insurance operations. The activities of the Group remain predominantly connected with insurance. Under the current requirements (IAS 39), a majority of the Group’s investments were designated as at fair value through prot or profit or loss on initial recognition and subsequently remeasured to fair value at each reporting date, reecting teflecting the Group’s business model for managing and evaluating the investment portfolio. The adoption of IFRS 9 is not expected to result in any material changes to the measurement of the Group’s investments, which continues to be at fair value through prot or lprofit or loss. Loans, receivables and debtors in scope of IFRS 9 will continue to be recognised at amortised cost less impairment, with the measurement of impairment reecreflecting expected credit losses. The Group expects a recognition of an earlier and higher loss allowance under this approach compared to the current incurred loss approach, but the impact on equity on adoption is not expected to be material. IFRS 9 has been endorsed by the UK Endorsement Board. A IFRS 17 Insurance Contracts The Group will restate comparative information for 2022 applying the full retrospective transitional provisions of I FR S 17. The nature of the changes in accounting policies can be summarised, as follows. The Group is permitted under IFRS 4 Insurance Contracts to continue to adopt the existing accounting policies that were applied prior to the adoption of IFRS (‘grandfathered’) or the date of the acquisition of a subsidiary. IFRS 17 replaces IFRS 4 and is effective for annual periods beginning on or after 1 January 2023 and has been endorsed by the UK Endorsement Board. IFRS 17 establishes specic principles f7 establishes specific principles for the recognition, measurement and presentation of insurance contracts issued and reinsurance contracts held by the Group. Under IFRS 17, the liability for incurred claims (LIC) is equivalent to the liabilities for claims reported, claims adjustment expenses, and claims incurred but not reported under IFRS 4 and the liability for remaining coverage (LRC) is equivalent to unearned premium liabilities for premiums received. Measurement IFRS 17 requires a current measurement model where estimates are remeasured at each reporting period. Under the General Measurement Model (GMM), contracts are measured using the building blocks of discounted probability-weighted fullmentd fulfilment cash ows cash flows, an explicit risk adjustment, and a contractual service margin (CSM) representing the unearned prot of tfit of the contract which is recognised as revenue over the coverage period. A simplicatilification, the Premium Allocation Approach (PAA), can be applied if certain eligibility criteria are met. The majority of the Group’s policies have a coverage period of 12 months or less and so are eligible for the PAA. Management applies signicant judgement iapplies significant judgement in assessing whether applying the PAA to groups of contracts with a coverage period extending beyond 12 months would produce a measurement of the LRC that would not differ materially from the one that would be produced applying GMM. Management has concluded that a majority of the Group’s insurance contracts issued, and reinsurance contracts held, meet the criteria and the PAA is applied to measure them. The measurement principles differ from the approach used by the Group under IFRS 4. The key areas are: A the LRC reects pflects premiums received less deferred insurance acquisition cash owion cash flows and less amounts recognised in insurance service revenue. The Group has taken the option not to discount the LRC; A measurement of the LRC does not require separate identicatidentification of the risk adjustment for non-nancial non-financial risk and the CSM; A measurement of the LRC is adjusted if a group of contracts is expected to be onerous (i.e. loss making) over the remaining coverage period and a loss is recognised immediately in the income statement under ‘insurance service expenses’ with the recoveries in ‘amounts recoverable from reinsurers for incurred claims’. A loss component is measured as the excess of the fullment cfilment cash ows thash flows that relate to the remaining coverage of the group over the carrying amount of the LRC of the group of contracts; A measurement of the LIC is determined on a probability-weighted expected value basis. In contrast to IFRS 4, the LIC is discounted. The LIC also includes an explicit risk adjustment to compensate for non-nancial risk.financial risk. The liability includes the Group’s obligation to pay other incurred insurance expenses; 2 Basis of preparation 2.1 Signica1 Significant accounting policies (a) New accounting standards, interpretations and amendments to published standards continued | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Notes to the consolidated nancial statements 172 Hiscox Ltd Report and Accounts 2022 A the discount rates used to calculate the LIC are constructed using risk-free rates, plus an illiquidity premium, where applicable. The risk-free rates are determined by reference to the market observable data (swap rates or highly liquid sovereign bonds) in the currencies of the respective (re)insurance contract liabilities. The liquidity premium is determined based on market observable illiquidity premiums in nancial assets financial assets, adjusted to reect the reflect the liquidity characteristics of the liability cash ows;sh flows; A the risk adjustment for non-nancial risk is tfinancial risk is the estimated compensation that the Group requires for bearing the uncertainty about the amount and timing of the cash ows of groups of inh flows of groups of insurance contracts. Management applies signicant judgementManagement applies significant judgements in determining the risk adjustment amount; A measurement of the reinsurance contract asset for remaining coverage (ARC) reecting rARC) reflecting reinsurance premiums paid for reinsurance held is adjusted to include a loss-recovery component to reecto reflect the expected recovery of onerous contract losses where such contracts reinsure onerous contracts; A measurement of the reinsurance asset for incurred claims (AIC) is similar to the LIC as set out above; A the expected premium received is recognised in the consolidated income statement as part of insurance service revenue over the insurance coverage period on the basis of the passage of time, unless the expected pattern of release from risk differs signicantlficantly from the passage of time, in which case it is recognised based on the expected timing of incurred claims and benets;nefits; A all insurance and reinsurance contract assets and liabilities are monetary items. As a result, those balances denominated in foreign currencies are subject to revaluation at foreign exchange rates prevailing at the reporting date, with the impact of changes in foreign exchange rates recognised in the income statement in insurance nance finance income and expenses; Aunder IFRS 4, acquisition costs were recognised and presented separately as ‘deferred acquisition costs’. Under IFRS 17, the Group has taken the option to include directly attributable acquisition cash ows in the Lash flows in the LRC which are tested separately for recoverability and are amortised as part of insurance service expenses. Changes to presentation and disclosure The presentation of the income statement will change, with premium and claims guremium and claims figures being replaced with insurance contract revenue, insurance service expense and insurance nance income and expense. Gross andand insurance finance income and expense. Gross and net premiums written will no longer be presented on the face of the income statement. Further, reinsurance commission income that is contingent on claims, for example protample profit commission income, is treated as a part of claims recoveries cash ows and thflows and that which is not contingent on claims, for example overrider commission, is accounted for as part of premium paid or received cash ows.ash flows. Transition On transition date, 1 January 2022, the Group: A has identieentified, recognised and measured each group of insurance contracts as if IFRS 17 requirements had always applied (the fully retrospective approach); A derecognised any existing balances that would not exist had IFRS 17 requirements always applied; A performed a PAA eligibility assessment for the 2021 and prior unexpired groups of insurance and reinsurance contracts with coverage periods of longer than 12 months; A estimated the net impact to equity at 1 January 2022 of approximately $25 million (increase) driven by the following factors: A the application of the discounting of the insurance contract liabilities and assets of approximately $55 million; A offset by other differences including the recognition of onerous contract net loss components, non-performance risk, and application of a Group-wide risk adjustment policy and accounting policies on a consistent basis under IFRS 17 of approximately $30 million. The Group has not presented here the restated opening balance sheet on 1 January 2022 or restated accounts for the year-end 2022. These are being nalig finalised and will be presented later in 2023, before the announcement of the half-year 2023 results. 2.2 Basis of consolidation (a) Subsidiaries Subsidiaries are those entities controlled by the Group. Control exists when the Group has power over an entity, exposure or rights to variable returns from its involvement with the investee and ability to use its power to affect those returns. The consolidated naidated financial statements include the assets, liabilities and results of the Group up to 311 December each year. The nahe financial statements of subsidiaries are included in the consolidated nancated financial statements only from the date that control commences until the date that control ceases. The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. The consideration transferred also includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identiable assetsdentifiable assets acquired, liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest’s proportionate share of the recognised amounts of acquiree’s identiable net assets identifiable net assets. Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions – that is, as transactions with the owners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity. 2 Basis of preparation 2.1 Signica1 Significant accounting policies (b) Future accounting developments continued | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Notes to the consolidated nancial statements 173Hiscox Ltd Report and Accounts 2022 (b) Associates Associates are those entities in which the Group has signicaificant inuent influence, but not control, over the nanntrol, over the financial and operating policies. Signicant i policies. Significant inuence is generally identnfluence is generally identiedified with a shareholding of between 20% and 50% of an entity’s voting rights. The consolidated nancated financial statements include the Group’s share of the total recognised gains and losses of associates on an equity-accounted basis from the date that signicant insignificant influence commences until the date that signi that significant inuenceinfluence ceases. The Group’s share of its associates’ post-acquisition prots or loprofits or losses after tax is recognised in the income statement for each period, and its share of the movement in the associates’ net assets is reesets is reflected in the investments’ carrying values on the balance sheet. When the Group’s share of losses equals or exceeds the carrying amount of the associate, the carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred obligations in respect of the associate. (c) Transactions eliminated on consolidation Intragroup balances, transactions and any unrealised gains arising from intragroup transactions are eliminated in preparing the consolidated nlidated financial statements. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Foreign currency gains and losses on intragroup monetary assets and liabilities may not fully eliminate on consolidation when the intragroup monetary item concerned is transacted between two Group entities that have different functional currencies. Unrealised gains arising from transactions with associates are eliminated to the extent of the Group’s interest in the entity. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. 2.3 Foreign currency translation (a) Functional currency Items included in the nad in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the ‘functional currency’). Entities operating in France, Germany, The Netherlands, Spain, Portugal, Ireland and Belgium have functional currency of Euros; those subsidiary entities operating from the USA, Bermuda, Guernsey and Syndicates have functional currency of US Dollars with the exception of Hiscox Ltd, a public company incorporated and domiciled in Bermuda with functional currency of Sterling. Functional currencies of entities operating in Asia include US Dollars, Singapore Dollars and Thai Baht. All other entities have functional currency of Sterling. (b) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the retranslation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when deferred in equity as IAS 39 effective net investment hedges or when the underlying balance is deemed to form part of the Group’s net investment in a subsidiary operation and is unlikely to be settled in the foreseeable future. Non-monetary items carried at historical cost are translated on the balance sheet at the exchange rate prevailing on the original transaction date. Non-monetary items measured at fair value are translated using the exchange rate ruling when the fair value was determined. (c) Group companies The results and nand financial position of all the Group entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows: A assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; A income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the date of the transactions); and A all resulting exchange differences are recognised as a separate component of equity. When a foreign operation is sold, such exchange differences are recognised in the income statement as part of the gain, or loss, on sale. 2.4 Property, plant and equipment Property, plant and equipment are stated at historical cost less depreciation and any impairment loss. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benet future economic benefits associated with the item will ow to the Groutem will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance items are charged to the income statement during the ning the financial period in which they are incurred. Land is not depreciated as it is deemed to have an indenidefinite useful economic life. The cost of leasehold improvements is amortised over the unexpired term of the underlying lease or the estimated useful life of the asset, whichever is shorter. Depreciation on other assets is calculated using the straight-line method to allocate their cost, less their residual values, over their estimated useful lives. The rates applied are as follows: A buildings 20–50 years A vehicles 3 years A leasehold improvements including xfixtures and tnd fittings 10–15 years A furniture, ttingsfurniture, fittings and equipment 3–15 years The assets’ residual values and useful lives are reviewed at each balance sheet date and adjusted if appropriate. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These are included in the income statement. 2 Basis of preparation 2.2 Basis of consolidation continued | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Notes to the consolidated nancial statements 174 Hiscox Ltd Report and Accounts 2022 2.5 Intangible assets (a) Goodwill Goodwill represents amounts arising on acquisition of subsidiaries and associates. In respect of acquisitions that have occurred since 1ince 1 Januaryy 2004, goodwill represents the excess of the fair value of consideration of an acquisition over the fair value of the Group’s share of the net identiabntifiable assets and contingent liabilities assumed of the acquired subsidiary or associate at the acquisition date. In respect of acquisitions prior to 1ior to 1 Januaryy 2004, goodwill is included on the basis of its deemed cost, which represents the amount recorded under previous generally accepted accounting principles. Goodwill on acquisition of subsidiaries is included in intangible assets. Goodwill on acquisition of associates is included in investments in associates. Goodwill is not amortised but is tested at least annually for impairment and carried at cost, less accumulated impairment losses. Goodwill is allocated to the Group’s cash-generating units identied accoridentified according to the smallest identiable unit t identifiable unit to which cash ows are geh flows are generated. The impairment review process examines whether or not the carrying value of the goodwill attributable to individual cash-generating units exceeds its recoverable amount. Any excess of goodwill over the recoverable amount arising from the review process indicates impairment. Any impairment charges are presented as part of operational expenses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. (b) Other intangible assets Intangible assets acquired separately from a business are carried initially at cost. An intangible asset acquired as part of a business combination is recognised outside of goodwill if the asset is separable or arises from contractual or other legal rights and its fair value can be measured reliably. Customer relationships, syndicate capacity and software acquired are capitalised at cost, being the fair value of the consideration paid. Software is capitalised on the basis of the costs incurred to acquire and bring it into use. Intangible assets with indenite liveefinite lives such as syndicate capacity are subsequently valued at cost and are subject to annual impairment assessment. Intangible assets with nits with finite useful lives are consequently carried at cost, less accumulated amortisation and impairment. The useful life of the asset is reviewed annually. Any changes in estimated useful lives are accounted for prospectively with the effect of the change being recognised in the current and future periods, if relevant. Amortisation is calculated using the straight-line method to allocate the cost over the estimated useful lives of the intangible assets. Subsequent expenditure on other intangible assets is capitalised only when it increases the future economic benets embefits embodied in the specic acific asset to which it relates. All other expenditure is expensed as incurred. Those intangible assets with nite lives ath finite lives are assessed for indicators of impairment at each reporting date. Where there is an indication of impairment then a full impairment test is performed. An impairment loss recognised for an intangible asset in prior years should be reversed if, and only if, there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. 2.6 Fair value Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using a valuation technique. This presumes that the transaction takes place in the principal (or most advantageous) market under current market conditions. Fair value is a market-based measure and in the absence of observable market prices in an active market, it is measured using the assumptions that market participants would use when pricing the asset or liability. The fair value of a non-nance of a non-financial asset is determined based on its highest and best use from a market participant’s perspective. When using this approach, the Group takes into account the asset’s use that is physically possible, legally permissible and nancially financially feasible. The best evidence of the fair value of a nalue of a financial instrument at initial recognition is normally the transaction price, i.e. the fair value of the consideration given or received. If an asset or a liability measured at fair value has a bid price and an ask price, the price within the bid-ask spread that is most representative of fair value in the circumstances is used to measure fair value. An analysis of fair values of naues of financial instruments and further details as to how they are measured are provided in note 20. 2.7 Financial assets and liabilities including loans and receivables The Group classies itThe Group classifies its nancial assetss financial assets as a) nancial as a) financial assets at fair value through prot or losrofit or loss, and b) loans and receivables. Management determines the classication o classification of its nancial assets based onfinancial assets based on the purpose for which the nancial the financial assets are held at initial recognition. The decision by the Group to designate debt and nate debt and fixed income holdings, equities and investment funds and deposits with credit institutions, at fair value through prot ofit or loss, reects th, reflects the fact that the investment portfolios are managed, and their performance evaluated, on a fair value basis. Purchases and sales of investments are accounted for at the trade date. Financial assets and liabilities are initially recognised at fair value. Subsequent to initial recognition, nafinancial assets and liabilities are measured as described below. Financial assets are derecognised when the right to receive cash ows from theh flows from them expires or where they have been transferred and the Group has also transferred substantially all risks and rewards of ownership. 2 Basis of preparation continued | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Notes to the consolidated nancial statements 175Hiscox Ltd Report and Accounts 2022 (a) Financial assets at fair value through prot or losh profit or loss A naA financial asset is classied into this cified into this category at inception if it is managed and evaluated on a fair value basis in accordance with a documented strategy, if acquired principally for the purpose of selling in the short term, or if it forms part of a portfolio of nfolio of financial assets in which there is evidence of short-term prot taking.ofit taking. (b) Loans and receivables Loans and receivables are non-derivative nrivative financial assets with with fixed or determinable payments that are not quoted on an active market. Balances are carried at amortised cost, less any provision for impairment, and include receivables arising from insurance contracts. (c) Borrowings All borrowings are initially recognised at fair value. Subsequent to initial recognition, borrowings are measured at amortised cost. Any difference between the value recognised at initial recognition and the ultimate redemption amount is recognised in the income statement over the period to redemption using the effective interest method. 2.8 Cash and cash equivalents The Group has classied cash deposits and short classified cash deposits and short-term highly-liquid investments as cash and cash equivalents. These assets are readily convertible into known amounts of cash and are subject to inconsequential changes in value. Cash equivalents are lents are financial investments with less than three months to maturity at the date of acquisition. 2.9 Impairment of assets Assets that have an indenite usefefinite useful life are not subject to amortisation and are tested annually or whenever there is an indication of impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. (a) Non-nancial assetsfinancial assets Objective factors that are considered when determining whether a non-nancial asse non-financial asset (such as goodwill, an intangible asset or item of property, plant and equipment) or group of non-nanon-financial assets may be impaired include, but are not limited to, the following: A adverse economic, regulatory or environmental conditions that may restrict future cash ows are cash flows and asset usage and/or recoverability; A the likelihood of accelerated obsolescence arising from the development of new technologies and products; and A the disintegration of the active market(s) to which the asset is related. (b) Financial assets Objective factors that are considered when determining whether a naer a financial asset or group of naroup of financial assets may be impaired include, but are not limited to, the following: A negative rating agency announcements in respect of investment issuers, reinsurers and debtors; A signicant reported nancial difculties ofsignificant reported financial difficulties of investment issuers, reinsurers and debtors; A actual breaches of credit terms such as persistent late payments or actual default; A adverse economic or regulatory conditions that may restrict future cash ows and ash flows and asset recoverability; and A the withdrawal of any guarantee from statutory funds or sovereign agencies implicitly supporting the asset. (c) Impairment loss An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value, less costs to sell and value in use. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identidentifiable cash ows (cashash flows (cash-generating units). For n. For financial assets carried at amortised cost, the amount of the impairment loss is measured as the difference between the asset’s carrying amount and the value of the estimated future cash ows discsh flows discounted at the nafinancial asset’s original effective interest rate. Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior periods. A reversal of an impairment loss is recognised as income immediately. Impairment losses recognised in respect of goodwill are not subsequently reversed. 2.10 Derivative nancial instruments0 Derivative financial instruments Derivatives are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently valued at fair value at each balance sheet date. Fair values are obtained from quoted market values and, if these are not available, valuation techniques including option pricing models are used as appropriate. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument and, if so, the nature of the item being hedged. For derivatives not formally designated as a hedging instrument, fair value changes are recognised immediately in the income statement. Changes in the value of derivatives and other nanr financial instruments formally designated as hedges of net investments in foreign operations are recognised in the currency translation reserve to the extent they are effective; gains or losses relating to the ineffective portion of the hedging instruments are recognised immediately in the consolidated income statement. The Group had no derivative instruments designated for hedge accounting during the current and prior nancial yearfinancial year. 2.11 Own shares Where any Group company purchases the Parent Company’s equity share capital (own shares), the consideration paid, including any directly attributable incremental costs (net of income taxes) is deducted from equity attributable to the Company’s owners on consolidation. Where such shares are subsequently sold, reissued or otherwise disposed of, any consideration received is included in equity attributable to the Company’s owners, net of any directly attributable incremental transaction costs and the related tax effects. 2 Basis of preparation 2.7 Financial assets and liabilities including loans and receivables continued | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Notes to the consolidated nancial statements 176 Hiscox Ltd Report and Accounts 2022 2.12 Revenue Revenue comprises insurance and reinsurance premiums earned on the rendering of insurance protection, net of reinsurance, together with prot commission profit commission, investment returns, agency fees and other income. The Group’s share of the results of associates is reported separately. The accounting policies for insurance premiums are set out in note 2.13. Other revenue is recognised when, or as, the control of the goods or services is transferred to a customer, i.e. performance obligations are fullre fulfilled at an amount that reecreflects the consideration to which the Group expects to be entitled in exchange for those goods or services. See note 9 for further details. 2.13 Insurance contracts (a) Classicationa) Classification Insurance contracts are denere defined as those containing signicaificant insurance risk if, and only if, an insured event could cause an insurer to make signicant additionale significant additional payments in any scenario, excluding scenarios that lack commercial substance, at the inception of the contract. Such contracts remain insurance contracts until all rights and obligations are extinguished or expire. The Group issues short-term casualty and property insurance contracts that transfer signicaificant insurance risk. (b) Recognition and measurement Gross premiums written comprise premiums on business incepting in the npting in the financial year, together with adjustments to estimates of premiums written in prior accounting periods. Estimates are included for pipeline premiums and an allowance is also made for cancellations. Premiums are stated before the deduction of brokerage and commission, but net of taxes and duties levied. Premiums are recognised as revenue (premiums earned) proportionally over the period of coverage. The portion of premium received on in-force contracts that relate to unexpired risks at the balance sheet date is reported as the unearned premium liability. Claims and associated expenses are charged to prot or loss d to profit or loss as incurred, based on the estimated liability for compensation owed to contract holders or third parties damaged by the contract holders. They include direct and indirect claims settlement costs and arise from events that have occurred up to the balance sheet date, even if they have not yet been reported to the Group. The Group does not discount its liabilities for unpaid claims. Liabilities for unpaid claims are determined based on the best estimate of the cost of future claim payments, plus an allowance for risk and uncertainty. Any estimate represents a determination within a range of possible outcomes using, as inputs, the assessments for individual cases reported to the Group, statistical analysis for the claims incurred but not reported, an estimate of the expected ultimate cost of more complex claims that may be affected by external factors, for example, court decisions, and an allowance for quantitative uncertainties not otherwise approved. (c) Deferred acquisition costs (DAC) Commissions and other direct and indirect costs that vary with and are related to securing new contracts and renewing existing contracts are capitalised as deferred acquisition costs. All other costs are recognised as expenses when incurred. DAC are amortised over the terms of the insurance contracts as the related premium is earned. (d) Liability adequacy tests At each balance sheet date, liability adequacy tests are performed by each business unit to ensure the adequacy of the contract liabilities net of related DAC. In performing these tests, current best estimates of future contractual cash ows ash flows and claims handling and administration expenses, as well as investment income from assets backing such liabilities, are used. Any decid. Any deficiency is charged to prot oo profit or loss initially by writing-off DAC and by subsequently establishing a provision for losses arising from liability adequacy tests (‘the unexpired risk reserve’). Any DAC written-off as a result of this test is not subsequently reinstated. (e) Outwards reinsurance contracts held Contracts entered into by the Group with reinsurers, under which the Group is compensated for losses on one or more insurance or reinsurance contract and that meet the classication rclassification requirements for insurance contracts, are classied as reinsurclassified as reinsurance contracts held. Contracts that do not meet these classicat meet these classification requirements are classieds are classified as nancial assetsas financial assets. The beneenefits to which the Group is entitled under outwards reinsurance contracts are recognised as assets. These assets consist of short-term balances due from reinsurers (classied within loans andclassified within loans and receivables), as well as longer-term receivables (classied as reinsuranceclassified as reinsurance assets) that are dependent on the expected claims and benetsnefits arising under the related reinsured insurance contracts. Amounts recoverable from or due to reinsurers are measured consistently with the amounts associated with the reinsured insurance contracts and in accordance with the terms of each reinsurance contract. The Group assesses its reinsurance assets on a regular basis and, if there is objective evidence, after initial recognition, of an impairment in value, the Group reduces the carrying amount of the reinsurance asset to its recoverable amount and recognises the impairment loss in the income statement. Reinsurance liabilities primarily comprise premiums payable for outwards reinsurance contracts. (f) Retroactive reinsurance transactions Retroactive insurance contracts that contain signicantt contain significant insurance risk and that have an insurance component and a deposit component are unbundled providing the deposit component can be measured separately. The deposit component is recorded directly into the balance sheet within reinsurers’ share of insurance liabilities with a corresponding amount in creditors arising out of reinsurance operations. The reinsurers’ share of insurance liabilities relating to the contracts is remeasured at each reporting period with movements taken to the reinsurance recoveries in the income statement. Reinsurance transactions that transfer risk, but are retroactive, are included in reinsurance assets. The excess of estimated liabilities for claims and claim expenses over the consideration paid is established as a deferred credit at inception. The deferred amounts are subsequently amortised using the 2 Basis of preparation continued | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Notes to the consolidated nancial statements 177Hiscox Ltd Report and Accounts 2022 recovery method over the settlement period of the reserves and reectand reflected through the claims and claim adjustment expenses line. In transactions where the consideration paid exceeds the estimated liabilities for claims and claim adjustment expenses, a loss is recognised immediately. (g) Reinsurance commission income Reinsurance commission income represents commission earned from ceding companies which is earned over the terms of the underlying reinsurance contracts and presented separately in the consolidated income statement. (h) Receivables and payables related to insurance contracts Receivables and payables are recognised when due. These include amounts due to, and from, agents, brokers and insurance contract holders. If there is objective evidence that the insurance receivable is impaired, the Group reduces the carrying amount of the insurance receivable accordingly and recognises the impairment loss in the income statement. (i) Salvage and subrogation reimbursements Some insurance contracts permit the Group to sell property acquired in settling a claim (i.e. salvage). The Group may also have the right to pursue third parties for payment of some or all costs (i.e. subrogation). Estimates of salvage recoveries are included as an allowance in the measurement of the insurance liability for claims and salvage property is recognised in other assets when the liability is settled. The allowance is the amount that can reasonably be recovered from the disposal of the property. Subrogation reimbursements are also considered as an allowance in the measurement of the insurance liability for claims and are recognised in other assets when the liability is settled. The allowance is the assessment of the amount that can be recovered from the action against the liable third party. 2.14 Taxation Current tax, including corporation tax and foreign tax, is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date. A provision is recognised for those matters for which the tax determination is uncertain but it is considered probable that there will be a future outow of funds to a taflow of funds to a tax authority. The provisions are measured at the best estimate of the amount expected to become payable. The assessment is based on the judgement of tax professionals within the Group supported by previous experience in respect of such activities and in certain cases based on advice sought from specialist tax advisors. Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the nafinancial statements. However, if the deferred income tax arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable prot or lole profit or loss, it is not recognised. Deferred tax is determined using tax rates and laws that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. Deferred tax assets are recognised to the extent that it is probable that future taxable prot will brofit will be available against which the temporary differences can be utilised. Deferred tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the Group controls the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. 2.15 Employee benetsyee benefits (a) Pension obligations The Group has dened contribution defined contribution and dened benet and defined benefit pension schemes. The denedpension schemes. The defined benet scheme closed t benefit scheme closed to future accrual with effect from 31fect from 31 Decembermber 2006 and active members were offered membership of the denip of the defined contribution scheme from 1me from 1 Januaryy 2007. A den. A defined contribution plan is a pension plan under which the Group pays xed copays fixed contributions into a separate entity and has no further obligation beyond the agreed contribution rate. A denA defined benet plaefit plan is a pension plan that dean that defines an amount of pension benet that anefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. For deFor defined contribution plans, the Group pays contributions to publicly or privately administered pension insurance plans on a contractual basis. The contributions are recognised as an employee benet expnefit expense when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in future payments is available. The amount recognised on the balance sheet in respect of dendefined benet peefit pension plans is the present value of the dendefined benet oblefit obligation at the balance sheet date, less the fair value of plan assets. The calculation of the denen of the defined benet obligatbenefit obligation is performed annually by a qualied qualified actuary using the projected unit method. As the plan is closed to all future benet accrfit accrual, each participant’s benets undefits under the plan are based on their service to the date of closure or earlier leaving date and their nalir final pensionable earnings. The service cost is the expected administration cost during the year. Past service costs are recognised immediately in the income statement. Remeasurements of the net dened benet liabilityt defined benefit liability, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any), are recognised immediately in other comprehensive income. The Group determines the net interest expense (income) on the net deneet defined benet liability (benefit liability (asset) for the period by applying the discount rate used to measure the dened befined beneenefit obligation at the beginning of the annual period to the then net dened benet liability ( defined benefit liability (asset), taking into account any changes in the net dened benet liabil net defined benefit liability (asset) during the period as a result of contributions and benet penefit payments. Net interest expense and other expenses related to dened blated to defined benet penefit plans are recognised in the income statement through operating expenses. To the extent that a surplus emerges on the denn the defined benetnefit obligation, it is only recognisable as an asset when it is probable that future economic benec benefits will be recovered by the Group. 2 Basis of preparation 2.13 Insurance contracts (f) Retroactive reinsurance transactions continued | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Notes to the consolidated nancial statements 178 Hiscox Ltd Report and Accounts 2022 (b) Other long-term employee benetsyee benefits The Group provides sabbatical leave to employees on completion of every y five years’ service. The present value of the expected costs of these benets is acnefits is accrued over the period of employment. In determining this liability, consideration is given to future increases in salary levels, experience with employee departures and periods of service. (c) Share-based compensation The Group operates equity settled share-based employee compensation plans. These include the share option schemes, and the Group’s Performance Share Plans, outlined in the Directors’ remuneration report, together with the Group’s Save As You Earn (SAYE) schemes. The fair value of the employee services received, measured at grant date, in exchange for the grant of the awards is recognised as an expense, with the corresponding credit being recorded in retained earnings within equity. The total amount to be expensed over the vesting period is determined by reference to the fair value of the awards granted, excluding the impact of any non-market vesting conditions (for example, protability orfitability or net asset growth targets). Non-market vesting conditions are included in assumptions about the number of awards that are expected to become exercisable. At each balance sheet date, the Group revises its estimates of the number of awards that are expected to vest. The Group recognises the impact of the revision of original estimates, if any, in the income statement, and a corresponding adjustment to equity, in periods in which the estimates are revised. When the terms and conditions of an equity settled share-based employee compensation plan are modied plan are modified, and the expense to be recognised increases as a result of the modication, thefication, then the increase is recognised evenly over the remaining vesting period. When a modicating period. When a modification reduces the expense to be recognised, there is no adjustment recognised and the pre-modicatioification expense continues to be applied. The proceeds received net of any directly attributable transaction costs are credited to share capital and share premium when the options are exercised. (d) Termination benetsnefits Termination benets areion benefits are payable when employment is terminated before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benetsthese benefits. The Group recognises termination benetsion benefits when it is demonstrably committed to either: terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal; or providing termination benets as a renefits as a result of an offer made to encourage voluntary redundancy. (e) Prot sha) Profit sharing and bonus plans The Group recognises a liability and an expense for bonuses and prot shad profit sharing, based on a formula that takes into consideration the prot attributable tofit attributable to the Company’s shareholders after certain adjustments. The Group recognises a provision where a contractual obligation to employees exists or where there is a past practice that has created a constructive obligation. 2.16 Net investment hedge accounting In order to qualify for hedge accounting, the Group is required to document, in advance, the relationship between the item being hedged and the hedging instrument. The Group is also required to document and demonstrate an assessment of the relationship between the hedged item and the hedging instrument, which shows that the hedge will be highly effective on an ongoing basis. This effectiveness testing is reperformed at each period end to ensure that the hedge remains highly effective. Accumulated gains or losses will be recycled to the income statement only when the foreign operation is disposed of. The ineffective portion of any hedge is recognised immediately in the income statement. 2.17 Finance costs Finance costs consist of interest charges accruing on the Group’s borrowings and bank overdrafts together with commission fees charged in respect of Letters of Credit and interest in respect of lease liabilities and funds withheld. Arrangement fees in respect of nanct of financing arrangements are charged over the life of the related facilities. 2.18 Provisions Provisions are recognised where there is a present obligation (legal or constructive) as a result of a past event that can be measured reliably and it is probable that an outow offlow of economic beneenefits will be required to settle that obligation. 2.19 Leases (a) Hiscox as lessee The Group recognises right-of-use assets at the commencement date of the lease (i.e. the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date, less any lease incentives received. Unless the Group is reasonably certain to obtain ownership of the leased asset at the end of the lease term, the recognised right-of-use assets are depreciated on a straight-line basis over the shorter of their estimated useful life and the lease term. Right-of-use assets are subject to impairment. Right-of-use assets are presented on the balance sheet as ‘property, plant and equipment’. At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include xed paymde fixed payments less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating a lease, if the lease term reese term reflects the Group exercising the option to terminate. The variable lease payments that do not depend on an index or a rate are recognised as an expense in the period in which the event or condition that triggers the payment occurs. Lease liabilities are included in ‘trade and other payables’ on the balance sheet. In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease 2 Basis of preparation 2.15 Employee benets5 Employee benefits continued | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Notes to the consolidated nancial statements 179Hiscox Ltd Report and Accounts 2022 commencement date if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reect to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modication thfication that is not accounted for as a separate lease: future lease payments that are linked to a rate or index, a change in the lease term, a change in the in-substance xede fixed lease payments, a change in the assessment to purchase the underlying asset or a change in the amounts expected to be payable under a residual value guarantee. The Group applies the short-term lease recognition exemption to its applicable short-term leases. It also applies the low-value assets recognition exemption to leases of ofcs of office equipment that are considered of low value. Lease payments on short-term leases and leases of low-value assets are recognised as an expense on a straight-line basis over the lease term. (b) Hiscox as lessor Rental income from operating leases is recognised on a straight-line basis over the term of the relevant contractual agreement. 2.20 Dividend distribution Dividend distribution to the Company’s shareholders is recognised as a liability in the Group’s nas financial statements in the period in which the dividends are approved. 2.21 Use of signicant judgementsse of significant judgements, estimates and assumptions The preparation of nanation of financial statements requires the Group to select accounting policies and make judgements, estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses in the consolidated nandated financial statements. The Audit Committee reviews the reasonableness of critical judgements, estimates and assumptions applied and the appropriateness of signicanteness of significant accounting policies. The signicant issues consideredsignificant issues considered by the Committee in the year are included within the Audit Committee report on pages 99 to 101. Signicant accountSignificant accounting judgements The following accounting policies are those considered to have a signicant impe a significant impact on the amounts recognised in the consolidated olidated financial statements. A Consolidation: assessment of whether the Group controls an underlying entity, for example, the treatment of insurance-linked securities funds including consideration of its decision-making authority and its rights to the variable returns from the entity; A Insurance contracts: assessment of the signicancehe significance of insurance risk transferred to/from the Group in determining whether a contract should be accounted for as an insurance contract or as a ntract or as a financial instrument. This includes assessing the risk transferred on portfolio transfers and the appropriate presentation of retroactive reinsurance transactions; A Financial investments: classication: classification and measurement of investments including the application of the fair value option. Signicant accountSignificant accounting estimates All estimates are based on management’s knowledge of current facts and circumstances, assumptions based on that knowledge and their predictions of future events. Actual results may differ from those estimates, possibly signicantly possibly significantly. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. The following describes items considered particularly susceptible to changes in estimates and assumptions. The most critical estimate included within the Group’s balance sheet is the measurement of insurance liabilities and reinsurance assets, and in particular the estimate of losses incurred but not reported (IBNR) within these balances. The total gross estimate of IBNR as at 311 Decemberr 2022 is $4,474.24.2 million (2021: $4,539.88 million). The total estimate for reinsurers’ share of losses IBNR as at 31 December 2022 is $2,261.9.9 million (2021:: $2,349.5 million). Estimates of IBNR are continually evaluated, based on entity-specic histspecific historical experience and contemporaneous developments observed in the wider industry when relevant, and are also updated for expectations of prospective future developments. Between the reporting and ting and final settlement of a claim, circumstances may change, which may result in changes to the established liability. The overall reserving risk is discussed in more detail in note 3.2 and the procedures used in estimating the cost of settling insured losses at the balance sheet date including losses incurred but not reported are detailed in note 23. The Group tests the adequacy of its unearned premium liability by comparing current estimates of future claims and claims handling expenses attributable to the unexpired periods of policies at the balance sheet date to the unearned premium liability net of acquisition costs. As set out in note 2.13(d), any decdeficiency is recognised in the income statement. The related deferred acquisition costs are rst wrre first written down and any additional liability required is then recognised as an unexpired risk reserve (URR). Another key estimate contained within the Group’s consolidated olidated financial statements is an estimate of gross premiums written during the year. For certain contracts, premium is initially recognised based on estimates of ultimate premium. This occurs where pricing is based on variables, which are not known with certainty at the point of binding the policy. In determining the estimated premium, the Group uses information provided by brokers and coverholders, past underwriting experience, the contractual terms of the policy and prevailing market conditions. Subsequently, adjustments to those estimates arise as updated information relating to those pricing variables becomes available, for example due to declarations obtained on binding authority contracts, reinstatement premium on reinsurance contracts or other policy amendments. Such adjustments are recorded in the period in which they are determined and impact gross premiums written in the consolidated income statement and premiums receivable from insureds and cedants recorded on the consolidated balance sheet. The Group carries its nes its financial investments at fair value through prot or losh profit or loss, with fair values determined using published price quotations in the most active nancial market financial markets 2 Basis of preparation 2.19 Leases (a) Hiscox as lessee continued | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Notes to the consolidated nancial statements 2 Basis of preparation 2.21 Use of signicant judgementsse of significant judgements, estimates and assumptions Signicant accountSignificant accounting estimates continued in which the assets trade, where available. Where quoted market prices are not available, valuation techniques are used to value naed to value financial instruments. These include third-party valuation reports and models utilising both observable and unobservable market inputs. Valuation techniques involve judgement, including the use of valuation models and their inputs, which can lead to a range of plausible valuations for nancial inor financial investments. Note 3.3 discusses the reliability of the Group’s fair values. The employee retirement benet scheme obligatement benefit scheme obligations are calculated and valued with reference to a number of actuarial assumptions including mortality, inationflation rates and discount rate, many of which have been subject to recent volatility. This complex set of economic variables can have a signicante a significant impact on the nancialhe financial statements, as shown in note 27. The Group operates in a multinational environment, and legislation concerning the determination of taxation of assets and liabilities is complex and continually evolving. In preparing the ning the financial statements, the Group applies signicant applies significant judgements in identifying uncertainties over tax treatments and in the measurement of the provision being the best estimate of the amount expected to become payable. The assessment is based on the judgement of tax professionals within the Group supported by previous experience in respect of such activities and based on advice sought from specialist tax advisors. A deferred tax asset can be recognised only to the extent that it is recoverable. The recoverability of deferred tax assets in respect of carry forward losses requires consideration of the future levels of taxable prot in the Ge profit in the Group. In preparing the Group’s nafinancial statements, management estimates taxation assets and liabilities after taking appropriate professional advice, as shown in note 25. Signicgnificant estimates and assumptions used in the valuation of deferred tax relate to the forecast taxable prots, take profits, taking into account the Group’s nanci’s financial and strategic plans. See note 26 for further details of adjustments made to deferred tax during the year. The determination and ation and finalisation of agreed taxation assets and liabilities may not occur until several years after the reporting date and consequently the nal e final amounts payable or receivable may differ from those presented in these nanse financial statements. 2.22 Reporting of additional performance measures The Directors consider that the combined, claims and expense ratio measures reported in respect of operating segments and the Group overall in note 4 and net asset value per share and return on equity measures disclosed in notes 5 and 6, provide useful information regarding the underlying performance of the Group’s businesses. These measures are widely recognised by the insurance 180 Hiscox Ltd Report and Accounts 2022 industry and are consistent with the internal performance measures reviewed by senior management including the chief operating decision-maker. However, these measures are not dendefined within the accounting standards and interpretations, and therefore may not be directly comparable with similarly titled additional performance measures reported by other companies. 3 Management of risk The Group’s overall appetite for accepting and managing varying classes of risk is densk is defined by the Group’s Board of Directors. The Board has developed a governance framework and has set Group-wide risk management policies and procedures which include risk identicat identification, risk management and mitigation and risk reporting. The objective of these policies and procedures is to protect the Group’s shareholders, policyholders and other stakeholders from negative events that could hinder the Group’s delivery of its contractual obligations and its achievement of sustainable protable economic andofitable economic and social performance. The Board exercises oversight of the development and operational implementation of its risk management policies and procedures through the Risk Committee, and ongoing compliance therewith through a dedicated internal audit function, which has operational independence, clear terms of reference inuen influenced by the Board’s Non Executive Directors and as and a clear upwards reporting structure back into the Board. The Group, in line with the non-life insurance industry generally, is fundamentally driven by an by a desire to originate, retain and service insurance contracts to maturity. The Group’s cash ows are fuh flows are funded mainly through advance premium collections and the timing of such premium inows ism inflows is reasonably predictable. In addition, the majority of material cash outows are tflows are typically triggered by the occurrence of insured events, although the timing, frequency and severity of claims can ms can fluctuate. The principal sources of risk relevant to the Group’s operations and its nand its financial statements fall into three broad categories: operational risk, insurance risk and nk and financial risk, which are described in notes 3.1, 3.2 and 3.3 below. The Group also actively manages its capital risks as detailed in note 3.4 and tax risks as detailed in note 3.5. Additional unaudited information is also provided in the corporate governance, risk management and capital sections of this Report and Accounts. 3.1 Operational risk The Group is exposed to the risk of direct or indirect loss resulting from internal processes, people or systems, or from external events. This includes cyber security risk, as well as major IT, systems or service failures. The Group has demonstrated continued resilience, underscoring the benets obenefits of its business model, disciplined risk management and ongoing investment in technology and infrastructure. We launched the ‘future of work’ programme to modernise our hybrid working policy (via introduction of team charters) and ensure our workforce are equipped with the necessary technology to enable this (via an updated digital workplace roll out). These measures have proven successful in addressing employee engagement challenges and a number of operational risks. | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Notes to the consolidated nancial statements 181Hiscox Ltd Report and Accounts 2022 In addition to the ‘future of work’, Hiscox has launched the Hiscox target operating model (HTOM) programme. The programme is systematically working through each part of our key functions to establish clarity in ownership and accountability of activities between the Group and business units, transparency and action around required capabilities and investment to better enable delivery of our strategy, and improved productivity and efciency as a consequence.ed productivity and efficiency as a consequence. 3.2 Insurance risk The predominant risk to which the Group is exposed is insurance risk which is assumed through the underwriting process. Insurance risk can be sub-categorised into i) underwriting risk including the risk of catastrophe and systemic insurance losses and the insurance competition and cycle, and ii) reserving risk. i) Underwriting risk The Board sets the Group’s underwriting strategy and risk appetite, seeking to exploit identied opportunities inxploit identified opportunities in light of other relevant anticipated market conditions. The Board requires all underwriters to operate within an overall Group appetite for individual events. This denes defines the maximum exposure that the Group is prepared to retain on its own account for any one potential catastrophe event or disaster. In addition, the Group’s overall underwriting risk appetite seeks to ensure that in a 1-in-200 bad year we are within the underwriting risk limit. The limit is calibrated each year based on exposure, expected prot acted profit and the size of other correlated risks to enable us to continue in business and take advantage of market opportunities that arise. Specic underSpecific underwriting objectives such as aggregation limits, reinsurance protection thresholds and geographical disaster event risk exposures are prepared and reviewed by the Group Chief Underwriting Ofcer ificer in order to translate the Board’s summarised underwriting strategy into specic specific measurable actions and targets. These actions and targets are reviewed and approved by the Board in advance of each underwriting year. The Board continually reviews its underwriting strategy throughout each underwriting year in light of the evolving market pricing and loss conditions and as opportunities present themselves. The Group’s underwriters and management consider underwriting risk at an individual contract level, and also from a portfolio perspective where the risks assumed in similar classes of policies are aggregated and the exposure evaluated in light of historical portfolio experience and prospective factors. To assist with the process of pricing and managing underwriting risk, the Group routinely performs a wide range of activities including the following: A regularly updating the Group’s risk models; A documenting, monitoring and reporting on the Group’s strategy to manage risk; A developing systems that facilitate the identication offication of emerging issues promptly; A utilising sophisticated computer modelling tools to simulate catastrophes and measure the resultant potential losses before and after reinsurance; A monitoring legal developments and amending the wording of policies when necessary; A regularly aggregating risk exposures across individual underwriting portfolios and known accumulations of risk; A examining the aggregated exposures in advance of underwriting further large risks; and A developing processes that continually factor market intelligence into the pricing process. The delegation of underwriting authority to specic authority to specific individuals, both internally and externally, is subject to regular review. All underwriting staff and binding agencies are set strict parameters in relation to the levels and types of business they can underwrite, based on individual levels of experience and competence. These parameters cover areas such as the maximum sums insured per insurance contract, maximum gross premiums written and maximum aggregated exposures per geographical zone and risk class. The Group compiles estimates of losses arising from extreme loss events using statistical models alongside input from its underwriters. These require signican. These require significant management judgement. The extreme loss scenarios, shown on pages 46 to 47, represent hypothetical major events occurring in areas with large insured values. They also represent areas of potentially signicnificant exposure for Hiscox. In addition to understanding the loss Hiscox may suffer from an event, it is important to ensure that the risk models used are calibrated to the risks faced today. This includes recognising and forecasting inatecasting inflationary trends, updating trends in claims payments, and capturing climate change-related impacts. Hiscox has a climate risk framework, which is used to assess where research resources should be focused, and models updated, and as a result improves not only the Group’s understanding of the potential impact of a changing climate but also the Group’s ability to respond. The selection of extreme loss scenario events is adjusted each year and they are not therefore necessarily directly comparable from one year to the next. The events are extreme and unprecedented, and as such these estimates may prove inadequate as a result of incorrect assumptions, model deciencies, or losses frommodel deficiencies, or losses from unmodelled risks. This means that should an extreme loss event actually occur, the Group’s s final ultimate losses could materially differ from those estimates modelled by management. The Group’s insurance contracts include provisions to contain losses, such as the ability to impose deductibles and demand reinstatement premiums in certain cases. In addition, in order to manage the Group’s exposure to repeated catastrophic events (both man-made and natural catastrophes), relevant policies frequently contain payment limits to cap the maximum amount payable from these insured events over the contract period. In the case of climate-exposed risks specicallyxposed risks specifically, the vast majority of contracts written by the Group are annual in nature and thus can be revised frequently. This exihis flexibility is a key tool for managing the multi-decade challenge of climate risks holistically. The Group also manages underwriting risk by purchasing reinsurance. Reinsurance protection is purchased at an entity level and is also considered at an overall Group level to mitigate the effect of catastrophes and unexpected concentrations of risk. However, the scope and type of reinsurance protection purchased may change depending 3 Management of risk 3.1 Operational risk continued | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Notes to the consolidated nancial statements 182 Hiscox Ltd Report and Accounts 2022 on the extent and competitiveness of cover available in the market. Below is alow is a summary of the gross and net insurance liabilities for each category of business. The estimated liquidity prolty profile to settle the gross claims liabilities is given in note 3.3(e). The specic insuific insurance risks accepted by the Group fall broadly into the following main categories: reinsurance inwards, marine and major asset property, other property risks, casualty professional indemnity and casualty other insurance risks. These specic cat. These specific categories are dened foregories are defined for risk review purposes only, as each contains risks specic ific to the nature of the cover provided. They are not exclusively aligned to any specic ro any specific reportable segment in the Group’s operational structure or to the primary internal reports reviewed by the chief operating decision-maker. The Group also considers climate change to be a cross-cutting risk with potential to impact each existing risk type, rather than a stand-alone risk. By design, the established and embedded Group risk management framework provides a controlled and consistent system for the identicatidentification, measurement, mitigation, monitoring and reporting of risks (both current and emerging) and so is structured in a way that allows us to continually and consistently manage the various impacts of climate risk on the risk prole. Tisk profile. This is supported by equally robust processes and policies that address climate-related underwriting risks, such as the Group-wide ESG exclusions policy which represents a commitment to reduce steadily, and eliminate by 2030, both underwriting and investment exposure to coal-reosure to coal-fired power plants and coal mines; Arctic energy exploration, beginning with the Arctic National Wildlife Refuge; oil sands; and controversial weapons such as landmines. More information on the strategy and governance structures in place to manage climate-related risks can be found on pages 60 to 67. The following describes the policies and procedures used to identify and measure the risks associated with each individual category of business. Reinsurance inwards The Group’s reinsurance inwards acceptances are primarily focused on large commercial property, homeowner and marine and short-tail specialty exposures held by other insurance companies predominantly in North America and other developed economies. This business is characterised more by large claims arising from individual events or catastrophes than the high-frequency, low-severity attritional losses associated with certain other business written by the Group. Multiple insured losses can periodically arise out of af a single natural or man-made occurrence. The main circumstances that result in claims against the reinsurance inwards book are conventional catastrophes, such as earthquakes or storms, but also includes other events including luding fires, explosions and cyber events. The occurrence and impact of these events are very difcult to predficult to predict over the short term, which complicates attempts to anticipate claims frequencies on an annual basis. In those years where there is aere is a low incidence of severe catastrophes, claims frequencies on the reinsurance inwards book can be relatively low. A signicant prA significant proportion of the reinsurance inwards business provides cover on an excess of loss basis for individual events. The Group agrees to reimburse the cedant once their losses exceed axceed a minimum level. Consequently, the frequency and severity of reinsurance inwards claims are related not only to the number of signicaificant insured events that occur, but also to their individual magnitude. If numerous catastrophes occurred in any one year, but the cedant’s individual loss on each was below the minimum stated, then the Group would have no liability under such contracts. Maximum gross line sizes and aggregate exposures are set for each type of programme. The Group writes reinsurance risks for periods of mainly one year so that contracts can be assessed for pricing and terms and adjusted to reect ajusted to reflect any changes in market conditions and the evolving impact of climate change. Property risks – marine and major assets The Group directly underwrites a diverse range of property risks. The risk prole of the prosk profile of the property covered under marine and major asset policies is different to that typically contained in the other classes of property (such as private households and contents insurance) covered by the Group. 3 Management of risk 3.2 Insurance risk i) Underwriting risk continued Estimated concentration of gross and net insurance liabilities on the balance sheet as at 31Decemt as at 31 December 2022 Types of insurance risk in the Group Reinsurance inwards $m Property – marine and major assets $m Property – other assets $m Casualty – professional indemnity $m Casualty – other risks $m Other* $m Total $m Total Gross 2,387.6 245.5 1,401.8 2,758.1 1,270.9 772.7 8,836.6 Net 438.2 141.9 976.3 2,241.6 638.1 500.7 4,936.8 Estimated concentration of gross and net insurance liabilities on the balance sheet as at 311 December 2021 Types of insurance risk in the Group Reinsurance inwards $m Property – marine and major assets $m Property – other assets $m Casualty – professional indemnity $m Casualty – other risks $m Other* $m Total $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 60 8.1 493.0 4,960.4 *Includes a diverse mix of certain specialty lines such as kidnap and ransom, terrorism and other risks which contain an a mix of property and casualty exposures. | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Notes to the consolidated nancial statements 183Hiscox Ltd Report and Accounts 2022 Typical property covered by marine and other major property contracts includes des fixed and moveable assets such as ships and other vessels, cargo in transit, energy platforms and installations, pipelines, other subsea assets, satellites, commercial buildings and industrial plants and machinery. These assets are typically exposed to a blend of catastrophic and other large loss events and attritional claims arising from conventional hazards such as collision, oision, flooding, re anoding, fire and theft. Climate change may give rise to more frequent and severe extreme weather events (for example, windstorms and river oodflooding) and it may be expected that their frequency will increase over time. For this reason, the Group accepts major property insurance risks for periods of mainly one year so that each contract can be repriced on renewal to reecn renewal to reflect the continually evolving risk prole. The mk profile. The most signicaificant risks covered for periods exceeding one year are certain specialist lines such as marine and offshore construction projects which can typically have building and assembling periods of between three and four years. These form a small proportion of the Group’s overall portfolio. Marine and major property contracts are normally underwritten by reference to the commercial replacement value of the property covered. The cost of repairing or rebuilding assets, of replacement or indemnity for contents and time taken to restart or resume operations to original levels for business interruption losses are the key factors that inuennfluence the level of claims under these policies. The Group’s exposure to commodity price risk in relation to these types of insurance contracts is very limited, given the controlled extent of business interruption cover offered in the areas prone to losses of asset production. Other property risks The Group provides home and contents insurance, together with cover for artwork, antiques, classic cars, jewellery, collectables and other assets. The Group also extends cover to reimburse certain policyholders when named insureds or insured assets are seized for kidnap and aa ransom demand is subsequently met. Events which can generate claims on these contracts include burglary, kidnap, seizure of assets, acts of vandalism, res, oodm, fires, flooding and storm damage. Losses on most classes can be predicted with aa greater degree of certainty as there is are is a rich history of actual loss experience data and the locations of the assets covered, and the individual levels of security taken by owners, are relatively static from one year to the next. The losses associated with these contracts tend to be of a higher frequency and lower severity than the marine and other major property assets covered above. The Group’s home and contents insurance contracts are exposed to weather and climate-related risks such as oods and windstas floods and windstorms and their consequences. As outlined earlier, the frequency and severity of these losses do not lend themselves to accurate prediction over the short term. Contract periods are therefore not normally more than one year at a time to enable risks to be regularly repriced. Contracts are underwritten by reference to the commercial replacement value of the properties and contents insured. Claims payment limits are always included to cap the amount payable on occurrence of the insured event. Casualty insurance risks The casualty underwriting strategy attempts to ensure that the underwritten risks are well diversiesified in terms of type and amount of potential hazard, industry and geography. However, the Group’s exposure is more focused towards professional, general, technological and marine liability risks rather than human bodily injury risks, which are only accepted under limited circumstances. Claims typically arise from incidents such as errors and omissions attributed to the insured, professional negligence and specic losses suffered as nce and specific losses suffered as aa result of electronic or technological failure of software products and websites. The provision of insurance to cover allegations made against individuals acting in the course of duciary or managerial course of fiduciary or managerial responsibilities, including directors and ofcer and officers’ insurance, is one example of a casualty insurance risk. The Group’s casualty insurance contracts mainly experience low-severity attritional losses. By nature, some casualty losses may take longer to settle than other categories of business. In addition, there is increased potential for accumulation in casualty risk due to the growing complexity of business, technological advances, and greater interconnectivity and interdependency across the world due to globalisation. The Group’s pricing strategy for casualty insurance policies is typically based on historical claim frequencies and average claim severities, adjusted for inatioinflation and extrapolated forwards to incorporate projected changes in claims patterns. In determining the price of each policy, an allowance is also made for acquisition and administration expenses, reinsurance costs, investment returns and the Group’s cost of capital. The market for cyber insurance is still a relatively immature one, complicated by the fast-moving nature of the threat, as the world becomes even more connected. The risks associated with cyber insurance are multiplying in both diversity and scale, with associated naniated financial and reputational consequences of failing to prepare for them. The Group has focused its cyber expertise on prevention, in addition to the more traditional recovery product. Cyber products are sold through our businesses in the UK, USA and Europe, and the product is sold both direct to consumers and through a more traditional broker channel. ii) Reserving risk The Group’s procedures for estimating the outstanding costs of settling insured losses at the balance sheet date, including claims incurred but not yet reported, are detailed in note 23. The Group’s provision estimates are subject to rigorous review by senior management from all areas of the business. The managed Syndicates and US business receive a review of their estimates from independent actuaries. The nafinal provision is approved by the relevant boards on the recommendation of dedicated reserving committees. Similar to the underwriting risk detailed above, the Group’s reserve risks are well diversied.ell diversified. Short-tailed claims are normally notied anotified and settled within 12 to 24 months of the insured event occurring. Those claims taking the longest 3 Management of risk 3.2 Insurance risk i) Underwriting risk continued | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Notes to the consolidated nancial statements 184 Hiscox Ltd Report and Accounts 2022 time to develop and settle typically relate to casualty risks, where legal complexities occasionally develop regarding the insured’s alleged omissions or negligence. The length of time required to obtain denitiefinitive legal judgments and make eventual settlements exposes the Group to ao a degree of reserving risk in an inationan inflationary environment. The The final quantum for casualty claims may not be established for many years after the event. A signicnificant proportion of the casualty insurance amounts reserved on the balance sheet may not be expected to settle within 24 months of the balance sheet date. Consequently, our approach is not to recognise favourable experience in the early years of development in the reserving process when setting the best estimate. Certain marine and property insurance contracts, such as those relating to subsea and other energy assets and the related business interruption risks, can also take longer than normal to settle. This is because of the length of time required for detailed subsea surveys to be carried out and damage assessments agreed, together with difcultficulties in predicting when the assets can be brought back into full production. For the inwards reinsurance lines, there is often a time lag between the establishment and re-estimate of case reserves and reporting to the Group. The Group works closely with the reinsured to ensure timely reporting and also centrally analyses industry loss data to verify the reported reserves. In addressing the impact of ination, the Gt of inflation, the Group focuses on: A regular case reserve reviews to ensure adequacy; A uplifts to incurred but not reported (IBNR) reserves to allow for current and future expectations of high inatioinflation rates; A assessment of rate increases against future int future inflation to assess loss ratio impacts. Given the increase in inationanflationary pressures over the year, the Group established explicit reserve uplifts to allow for the expected higher future claims costs. Loss ratios have also been reviewed to ensure they include an appropriate allowance for future inatioture inflation. Losses from Covid-19 continue to settle well within expectations and there has been positive development in rsin first-order losses in the events and contingency lines. As time passes and legal cases are gradually settled, the outcome becomes more certain and so the level of margin above the best estimate can be reduced. 3.3 Financial risk Overview The Group is exposed to naosed to financial risk through its ownership of nancial instruments including nancial financial instruments including financial liabilities. These items collectively represent a signicantsignificant element of the Group’s net shareholder funds. The Group invests in invests in financial assets in order to fund obligations arising from its insurance contracts and nancial liabilities. financial liabilities. The key nThe key financial risk for the Group is that the proceeds from its naits financial assets and investment result generated thereon are not sufcieficient to fund the Group’s obligations. The most important elements and economic variables that could result in such an outcome relate to the reliability of fair value measures, equity price risk, interest rate risk, credit risk, liquidity risk and currency risk. The Group’s policies and procedures for managing exposure to these specic ific categories of risk are detailed below. (a) Reliability of fair values The Group has elected to carry loans and receivables at amortised cost and all nancl financial investments at fair value through prot or losh profit or loss as they are managed and evaluated on aa fair value basis in accordance with aith a documented strategy. With the exception of any unquoted investments shown in note 20, all of the , all of the financial investments held by the Group are available to trade in markets and the Group therefore seeks to determine fair value by reference to published prices or as derived by pricing vendors using observable quotations in the most active nst active financial markets in which the assets trade. The fair value of nance of financial assets is measured primarily with reference to their closing market prices at the balance sheet date. The ability to obtain quoted market prices may be reduced in periods of diminished liquidity. In addition, those quoted prices that may be available may represent an unrealistic proportion of market holdings or individual trade sizes that could not be readily available to the Group. In such instances, fair values may be determined or partially supplemented using other observable market inputs such as prices provided by market makers such as dealers and brokers, and prices achieved in the most recent regular transaction of identical or closely-related instruments occurring before the balance sheet date, but updated for relevant perceived changes in market conditions. The Group did not experience any material defaults on debt securities during the year. Valuation of securities will continue to be impacted by external market factors including interest rates, default rates, rating agency actions and liquidity. The Group will make adjustments to the investment portfolio as appropriate as part of its overall portfolio strategy, but its ability to mitigate its risk by selling or hedging its exposures may be limited by the market environment. The Group’s future results may be impacted, both positively and negatively, by the valuation adjustments applied to securities. Note 20 provides an analysis of the measurement attributes of the Group’s nancial insts financial instruments. (b) Price risk The Group is exposed to price risk through its holdings of equities and investment funds. This is limited to a relatively small and controlled proportion of the overall investment portfolio and the equities and investment funds involved are diversied over aersified over a number of companies and industries. The fair value of equities and investment fund assets in the Group’s balance sheet at 31e sheet at 31 Decembermber 2022 was $3399 million (2021:: $461$461 million). A 10% downward correction in equities and investment fund prices at 31ices at 31 Decemberber 2022 would have been expected to reduce Group equity and prot afnd profit after tax by approximately $30 million (2021:: $41 million). These may be analysed as follows: 3 Management of risk 3.2 Insurance risk ii) Reserving risk continued | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Notes to the consolidated nancial statements 185Hiscox Ltd Report and Accounts 2022 Nature of equity and investment fund holdings 2022 % weighting 2021 % weighting Directly held equity securities 8 10 Equity funds 43 55 Hedge funds 49 35 Geographic focus Specic UK mcific UK mandates 22 38 Global mandates 78 62 The allocation of price risk is not heavily conly confined to any one market index so as to reduce the Group’s exposure to individual sensitivities. We make allocations to diversifying and less volatile strategies, such as absolute return strategies, so as to balance our desire to maximise returns with the need to ensure capital is available to support our underwriting throughout any downturn in nancial markwnturn in financial markets. (c) Interest rate risk Debt and xed incnd fixed income investments represent aresent a signicgnificant proportion of the Group’s assets and the Board continually monitors investment strategy to minimise the risk of aisk of a fall in the portfolio’s market value which could affect the amount of business that the Group is able to underwrite or its ability to settle claims as they fall due. The fair value of the Group’s investment portfolio of debt and xed inbt and fixed income holdings is normally inversely correlated to movements in market interest rates. If market interest rates rise, the fair value of the Group’s debt and xed incnd fixed income investments would tend to fall and vice versa if credit spreads remained constant. Debt and and fixed income assets are predominantly invested in high-quality corporate, government and asset-backed bonds. The investments typically have relatively short durations and terms to maturity. The portfolio is managed to minimise the impact of interest rate risk on anticipated Group cash ows.ash flows. The Group may also, from time to time, enter into interest rate future contracts in order to reduce interest rate risk on specic pocific portfolios. The fair value of debt and ebt and fixed income assets in the Group’s balance sheet at 311 Decemberber 2022 was $5,4277 million (2021: $5,5288 million). These may be analysed below as follows: Nature of debt and xed inebt and fixed income holdings 2022 % weighting 2021 % weighting Government issued 20 16 Agency and government supported 3 6 Asset-backed securities 4 2 Mortgage-backed instruments 5 7 Corporate bonds 64 65 Lloyd’s deposits and bond funds 2 2 Credit funds 2 2 One method of assessing interest rate sensitivity is through the examination of duration-convexity factors in the underlying portfolio. Using a duration-convexity-based sensitivity analysis, if market interest rates had increased or decreased by 200 basis points at the balance sheet date, the Group equity and prot afrofit after tax for the year might have been expected to 3 Management of risk 3.3 Financial risk (b) Price risk continued decrease or increase by approximately $17070 million respectively (2021:: $1899 million) assuming that the balance sheet area impacted was debt and xed iebt and fixed income nance financial assets, excluding interest rate futures. Duration is the weighted average length of time required for an instrument’s cash ow stream to be reh flow stream to be recovered, where the weightings involved are based on the discounted present values of each cash h cash flow. A. A closely related concept, modied dified duration, measures the sensitivity of the instrument’s price to a change in its yield to maturity. Convexity measures the sensitivity of modied ddified duration to changes in the yield to maturity. Using these three concepts, scenario modelling derives the above estimated impact on instruments’ fair values for a 200 basis point change in the term structure of market interest rates. Insurance contract liabilities are not directly sensitive to the level of market interest rates, as they are undiscounted and contractually non-interest-bearing. The Group’s debt and xed incnd fixed income assets are further detailed in note 17. At 311 Decemberber 2022, the Group had borrowings at nominal value of £52525 million (2021:: £550£550 million). The borrowings comprised £5255 million (2021:: £550£550 million) of long-term debt, which includes two listed instruments of £2755 million and £250d £250 million, as explained in note 17: the rthe first being xed-tg fixed-to-oatino-floating rate notes where the oating rfloating rate becomes effective from Novemberer 2025; the second being xed rate notes maturing fixed rate notes maturing in September 2027. The Group also has a revolving credit facility of $6000 million (2021: £450: £450 million), which is $nil drawn (2021: £nil) and, therefore, is not presenting interest risk. The Group has no other signicant borroher significant borrowings or other assets or liabilities carrying interest rate risk, other than the facilities and Letters of Credit (LOCs) outlined in note 30. (d) Credit risk The Group has exposure to credit risk, which is the risk that athat a counterparty will suffer afer a deterioration in actual or perceived eived financial strength and be unable to pay amounts in full when due, or that for any other reason they renege on a contract or alter the terms of an agreement. The concentrations of credit risk exposures held by insurers may be expected to be greater than those associated with other industries, due to the specic necific nature of reinsurance markets and the extent of investments held in neld in financial markets. In both markets, the Group interacts with ath a number of counterparties who are engaged in similar activities with similar customer proleer profiles, and often in the same geographical areas and industry sectors. Consequently, as many of these counterparties are themselves exposed to similar economic characteristics, one single localised or macroeconomic change could severely disrupt the ability of a signiy of a significant number of counterparties to meet the Group’s agreed contractual terms and obligations. Key areas of exposure to credit risk include: A reinsurers’ share of insurance liabilities; A amounts due from reinsurers in respect of claims already paid; A amounts due from insurance contract holders; and A counterparty risk with respect to cash and cash equivalents, and investments including deposits, derivative transactions and catastrophe bonds. | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Notes to the consolidated nancial statements 186 Hiscox Ltd Report and Accounts 2022 The Group’s maximum exposure to credit risk is represented by the carrying values of naes of financial assets and reinsurance assets included in the consolidated balance sheet at any given point in time. The Group does not use credit derivatives or other products to mitigate maximum credit risk exposures on reinsurance assets, but collateral may be requested to be held against these assets. The Group structures the levels of credit risk accepted by placing limits on its exposure to a single counterparty, or groups of counterparties, and having regard to geographical locations. Such risks are subject to an annual or more frequent review. There is no signicgnificant concentration of credit risk with respect to loans and receivables, as the Group has aroup has a large number of internationally dispersed debtors with unrelated operations. Reinsurance is used to contain insurance risk. This does not, however, discharge the Group’s liability as primary insurer. If a reinsurer fails to pay a claim for any reason, the Group remains liable for the payment to the policyholder. The creditworthiness of reinsurers is therefore continually reviewed throughout the year. The Group Reinsurance Credit Committee (RCC) assesses the creditworthiness of all reinsurers by reviewing credit grades provided by rating agencies and other publicly available nancial ivailable financial information detailing their nancial strheir financial strength and performance, as well as detailed analysis from the Group’s analysis team. The is team. The financial analysis of reinsurers produces an assessment categorised by factors including their S&P rating (or equivalent when not available from S&P). Despite the rigorous nature of this assessment exercise, and the resultant restricted range of reinsurance counterparties with acceptable strength and credit credentials that emerges therefrom, some degree of credit risk concentration remains inevitable. While the rating agencies provide strong analysis on the nas on the financials and governance of a reinsurance security, the RCC also takes account of qualitative factors. The RCC considers the reputation of its reinsurance partners and also receives details of recent payment history and the status of any ongoing negotiations between Group companies and these third parties. The es. The final score that a security receives will determine how much reinsurance credit risk Hiscox is willing to have with that security based on the exposure guidelines. This information is used to update the reinsurance purchasing strategy. Individual operating units maintain records of the payment history for signicnificant brokers and contract holders with whom they conduct regular business. The exposure to individual counterparties is also managed by other mechanisms, such as the right of offset, where counterparties are both debtors and creditors of the Group, and obtaining collateral from unrated counterparties. Management information reports detail provisions for impairment on loans and receivables and subsequent write-off. Exposures to individual intermediaries and groups of intermediaries are collected within the ongoing monitoring of the controls associated with regulatory solvency. The Group also mitigates counterparty credit risk by concentrating debt and g debt and fixed income investments in a portfolio of typically high-quality corporate and government bonds. An analysis of the Group’s major exposures to counterparty credit risk, excluding loans and receivables, and equities and units in unit trusts, based on S&P or equivalent rating, is presented below: As at 31 December 2022 Note AAA $m AA $m A $m BBB $m Other/ non-rated $m Total $m Debt and xDebt and fixed income holdings 17 521.6 1,475.2 1,580.7 1,449.3 399.8 5,426.6 Reinsurance assets 16 1,325.2 1,112.9 1,436.8 6.5 18.4 3,899.8 Cash and cash equivalents 21 242.3 23.3 1,084.9 – 0.4 1,350.9 Total 2,089.1 2,611.4 4,102.4 1,455.8 418.6 10,67 7.3 As at 31 December 2021 Note AAA $m AA $m A $m BBB $m Other/ non-rated $m Total $m Debt and xDebt and fixed income holdings 17 660.5 1,326.7 1,556.2 1,60 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 Within the debt and xed incnd 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. 3 Management of risk 3.3 Financial risk (d) Credit risk continued | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Notes to the consolidated nancial statements 187Hiscox Ltd Report and Accounts 2022 The largest aggregated counterparty exposure related to debt and xed incod fixed income holdings at 31ings at 31 Decemberber 2022 of $8277 million is to the US Treasury (2021:: $7122 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1 Decemberber 2022 is to Blue Jay Reinsurance. The recoverable amount from Blue Jay Reinsurance represents 21% (2021: Munich Re 11%) of this category of assets. For the current period and prior period, the Group did not experience any material defaults on debt securities. The Group’s AAA rated reinsurance assets include fully collateralised positions at 311 Decemberr 2022 and 2021. (e) Liquidity risk The Group is exposed to daily calls on its available cash resources, mainly from claims arising from insurance and reinsurance contracts. Liquidity risk is the risk that cash may not be available to pay obligations when due at a reasonable cost. The Board sets limits on the minimum level of cash and maturing funds available to meet such calls and on the minimum level of borrowing facilities that should be in place to cover unexpected levels of claims and other cash demands. A signicaificant proportion of the Group’s investments is in highly liquid assets which could be converted to cash in ash 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 xed inbt and fixed income securities and cash. There are no signiignificant holdings of investments with specic repcific repricing dates. Notwithstanding the regular interest receipts and also the Group’s ability to liquidate these securities and the majority of its other nay of its other financial instrument assets for cash in ash in a prompt and reasonable manner, the contractual maturity prole of thy profile of the fair value of these securities at 31ties at 31 December is as follows. Fair values analysed by contractual maturity as at 31 December 2022 Less than one year $m Between one and two years $m Between two and five years $m Over five years $m 2022 total $m Debt and xDebt and fixed income holdings 1,355.5 1,519.6 2,063.8 4 87.7 5,426.6 Cash and cash equivalents 1,350.9 – – – 1,350.9 Total 2,706.4 1,519.6 2,063.8 4 87.7 6,777.5 Fair values analysed by contractual maturity as at 31 December 2021 Less than one year $m Between one and two years $m Between two and five years $m Over five years $m 2021 total $m Debt and xDebt and fixed income holdings 1,111. 2 1,26 3.1 2,510.7 6 43.1 5,528.1 Cash and cash equivalents 1,300.7 – – – 1,300.7 Total 2,411.9 1,26 3.1 2,510.7 6 43.1 6,828.8 The Group’s equities, equity funds, hedge funds and credit funds and other non-dated instruments have no contractual maturity terms but predominantly could be liquidated in an orderly manner for cash in a prompt and reasonable time frame within one year of the balance sheet date. The available headroom of working capital is monitored through the use of a detailed Group cash ow foreash 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 2022 years 2021 years US Dollar 3.77 4.89 Sterling 2.65 2.66 Euro 2.67 3.05 Canadian Dollar 2.48 2.47 3 Management of risk 3.3 Financial risk (d) Credit risk continued | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Notes to the consolidated nancial statements 188 Hiscox Ltd Report and Accounts 2022 The following is an analysis by liability type of the estimated timing of net cash ows baseh 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 ows may dish flows may differ materially from the disclosure below. Liquidity requirements to settle estimated profile of gross claim liabilities on balance sheet 2022 Within one year $m Between one and two years $m Between two and five years $m Over five years $m 2022 total $m Reinsurance inwards 1,101.7 499.8 462.8 149.6 2,213.9 Property – marine and major assets 71.7 40.6 43.4 13.9 169.6 Property – other assets 413.5 277. 5 160.0 54.8 905.8 Casualty – professional indemnity 675.5 563.9 649.2 183.9 2,072.5 Casualty – other risks 463.7 253.6 259.6 94.7 1,071.6 Other* 288.3 104.9 102.5 31.1 526.8 Total 3,014.4 1,740.3 1,67 7. 5 528.0 6,960.2 2021 Within one year $m Between one and two years $m Between two and five years $m Over five years $m 2021 total $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 1,13 3.1 Other* 282.2 92.0 84.9 28.5 487.6 Total 3,332.3 1,74 8.5 1,4 97.4 4 67.7 7, 0 4 5 .9 *Includes a diverse mix of certain specialty lines such as kidnap and ransom, terrorism and other risks which contain a mix of property and casualty exposures. Details of the payment prole of the Gnt 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 ucg from fluctuations in exchange rates. The Group operates internationally and therefore is exposed to the naned to the financial impact of uctupact 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 classied in two main ca 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, nantment, financing and operational contracts in a currency that is different to each respective entity’s functional currency; and A structural foreign exchange exposure arises from the translation of the Group’s net investment in foreign operations to the US Dollar, the Group’s presentation currency. Operational currency risk Operational foreign exchange risk is principally managed within the Group’s individual entities by broadly matching assets and liabilities by currency and liquidity. Due attention is paid to local regulatory solvency and risk-based capital requirements. All foreign currency derivative transactions with external parties are managed centrally. The Group also manages some exchange risk centrally through matching intragroup loans and balances. The Group does not hedge operational foreign exchange risk arising from the accounting mismatch due to the translation of monetary and non-monetary items. Non-monetary items including unearned premiums, deferred acquisition costs and reinsurers’ share of unearned premiums are recorded at historical transaction rates and are not remeasured at the reporting date. Monetary items including claims reserves, reinsurers’ share of claims reserves and investments are remeasured at each reporting date at the closing rates. 3 Management of risk 3.3 Financial risk (e) Liquidity risk continued | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Notes to the consolidated nancial statements 189Hiscox Ltd Report and Accounts 2022 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 denthin 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 owave no cash flow. In periods of signiignificant 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 prole of the Gncy profile of the Group’s assets and liabilities is as follows: As at 31 December 2022 US Dollar $m Sterling $m Euro $m Other $m 2022 $m Employee retirement benet assetirement benefit asset – 20.9 – – 20.9 Goodwill and intangible assets 135.7 131.7 46.7 6.3 320.4 Property, plant and equipment 22.3 96.0 13.0 1.8 133.1 Investments in associates – 5.4 0.2 – 5.6 Deferred income tax 34.8 11.5 7.4 – 53.7 Deferred acquisition costs 267.1 101.9 59.9 21.2 450.1 Financial assets carried at fair value 4,165.8 938.5 511.8 196.0 5,812.1 Reinsurance assets 3,014.0 528.8 232.2 124.8 3,899.8 Loans and receivables including insurance receivables 1,008.4 450.4 125.5 87. 3 1,671.6 Current tax assets 3.5 – 0.5 – 4.0 Cash and cash equivalents 773.1 248.9 229.8 99.1 1,350.9 Total assets 9,424.7 2,534.0 1, 227.0 536.5 13,722.2 Deferred tax – – 0.2 – 0.2 Insurance liabilities 5,994.7 1,534.9 1,032.0 275.0 8,836.6 Financial liabilities – 636.0 0.2 – 636.2 Current tax 1.1 10.2 2.8 – 14.1 Trade and other payables 1,306.2 266.7 181.6 63.9 1,818.4 Total liabilities 7,3 02.0 2,4 47.8 1,216.8 338.9 11,305.5 Total equity 2,122.7 86.2 10.2 197.6 2,416.7 As at 31 December 2021 US Dollar $m Sterling $m Euro $m Other $m 2021 $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 6 07.4 154.5 120.7 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 benet obligairement benefit obligations – 3 5.1 – – 35.1 Deferred tax – – 0.1 – 0.1 Insurance liabilities 6,093.8 1,679.0 833.5 26 2.1 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 7,0 27. 9 2, 827. 2 1,078.3 373.8 11,3 07. 2 Total equity 1,9 47.4 294.3 6 9.1 228.5 2,539.3 3 Management of risk 3.3 Financial risk (f) Currency risk continued | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Notes to the consolidated nancial statements 190 Hiscox Ltd Report and Accounts 2022 Sensitivity analysis As at 311 Decemberer 2022, the Group used closing rates of exchange of $1: £0.83 and $1: €0.94 (2021:: $1: £0.74 and $1: €0.88). The Group performs sensitivity analysis based on a 10% strengthening or weakening of the US Dollar against Sterling and the Euro. This analysis assumes that all other variables, in particular interest rates, remain constant and that the underlying valuation of assets and liabilities in their base currency is unchanged. The estimated sensitivities below take account of the retranslation movements of foreign currency monetary assets and liabilities in Group entities, and for the effect on equity the impact on the retranslation of entities with non-US Dollar functional currencies. The methodology has been rened t been refined to include inter-company balances that are eliminated on consolidation, but still expose the Group to foreign currency risk, with comparatives re-presented accordingly. During the year, the Group transacted in a number of over-the-counter forward currency derivative contracts. The impact of these contracts on the sensitivity analysis is negligible. As at 31 December December 2022 effect on equity after tax $m December 2022 effect on profit before tax $m December 2021 effect on equity after tax $m December 2021 effect on profit before tax $m Strengthening of Sterling 58.0 17.3 54.3 (25.3 ) Weakening of Sterling (58.0) (17.3) (54.3) 25.3 Strengthening of Euro 10.1 3.9 14.2 3.9 Weakening of Euro (10.1) (3.9) (14.2) (3.9) (g) Limitations of sensitivity analysis The sensitivity information given in notes 3.3 (a) to (f) demonstrates the estimated impact of act of a change in ae in a major input assumption, while other assumptions remain unchanged. In reality, there are normally signicant le 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 benet scnefit scheme sensitivities presented in note 27 to these 7 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 nathe financial position of the Group may vary at the time that any actual market movement occurs. For example, the Group’s nafinancial risk management strategy aims to manage the exposure to market ucsure 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s 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 efcficient cost of capital; A to comply with all regulatory requirements by an appropriate margin; A to maintain nain 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 dened blable 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1 Decemberber 2022, the available capital under IFRS was $2,42727 million (2021:: $2,599$2,599 million), comprising net tangible asset value of $2,0966 million (2021:: $2,226,226 million) and subordinated debt of $331nated debt of $331 million (2021: $373 million). 3 Management of risk 3.3 Financial risk (f) Currency risk continued | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Notes to the consolidated nancial statements 191Hiscox Ltd Report and Accounts 2022 The Group can source additional funding from revolving credit and Letter of Credit (LOC) facilities. Standby funding from these sources comprised $931ed $931 million at 311 Decemberer 2022 (2021:: $9411 million). The Group’s borrowing facilities include nance 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 signicant oficant 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 pro risk profile of the business in weaker markets, particularly with respect to the more volatile business. The Group’s gearing is obtained from a number of sources, including: A LOC and revolving credit facility – the Group’s main facility may be drawn in cash up to $600 million (under a revolving credit facility) and utilised as LOC up to $266 million. The facility was renewed during 2022, enabling the Group to utilise the LOC as Funds at Lloyd’s to support underwriting on the 2022, 2023 and 2024 years of account. The revolving credit facility is available until the end of 2024. As at 31 December 2022, $266 million was utilised by way of LOC to support the Funds at Lloyd’s requirement and $nil cash drawings outstanding to support general trading activities (2021: $266 million and $nil respectively); A In 2020, the Group sourced an additional $65 million of funding in the form of a Funds at Lloyd’s facility. Under this facility assets are pledged with the Corporation of Lloyd’s on the Group’s behalf, providing regulatory Tier 1 capital. As at 311 December 2022 and 2021 the facility was fully drawn; A £2755 million of xed-tn of fixed-to-oatino-floating rate subordinated notes that are classiassified as Tier 2 debt. This was raised in Novembermber 2015 and matures in 2045. The debt is rated BBB- by S&P and Fitch; A £250 million of xed rate senion of fixed rate senior notes raised in September 2022 and maturing in September 2027. The debt is rated BBB+ by S&P and Fitch; A External Names – 27.4% of Syndicate 33’s capacity is capitalised by third parties, who also pay ao pay a prot share ofrofit share of approximately 20%; A Syndicate 6104 at Lloyd’s – with a capacity of £19.55 million for the 2023 year of account (2022 year of account: £12.77 million). This Syndicate is wholly backed by external members and takes pure year of account quota share of Syndicate 33’s property catastrophe, terrorism and cyber reinsurance accounts; A gearing quota shares – historically the Group has used reinsurance capital to fund its capital requirement for short-term expansions in the volume of business underwritten by the Syndicate; and A qualifying quota shares and legacy portfolio transactions – these are reinsurance arrangements that allow the Group to increase the amount of premium it writes. Financial strength The nancial strThe financial strength ratings of the Group’s signicants 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 benets fnefits from an A.M. Best rating of A (Excellent). In addition, the Syndicate also benets from the Lfits from the Lloyd’s ratings of A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. 3 Management of risk 3.4 Capital risk management continued | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Notes to the consolidated nancial statements 192 Hiscox Ltd Report and Accounts 2022 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 sufficient capital at all times throughout the year to meet the BMA’s requirements. The Solvency II regime came into force in Europe on 1pe on 1 Januaryy 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 prolr risk profiles are sufcieficiently 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 specicacifically 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 naa financial condition report, as part of its regulatory ly filing with the BMA. This is a public document and sets out the nets out the financial performance and solvency position of the Group in accordance with the economic balance sheet return led withturn 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 naese financial statements. Due to the Group’s operating model, there is an unquantiuantifiable risk that this division of taxing rights could be altered materially, either by a change to the tax residence, or permanent establishment prole, of Hiscox Ltrofile, of Hiscox Ltd or its principal subsidiaries; or due to the repricing or recharacterisation for tax purposes of transactions between members of the Group, under local transfer pricing or related tax legislation. The Group seeks to manage this risk by: A maintaining appropriate internal policies and controls over its operations worldwide; A monitoring compliance with these policies on an ongoing basis; A adhering to internationally recognised best practice in determining the appropriate division of prots between fits between taxing jurisdictions; A taking additional advice and obtaining legal opinions from local third-party professionals with the necessary experience in the particular area. Various jurisdictions in which the Group operates are committed to reaching an agreement on implementation of OECD ‘Pillar 2’ rules. Under current proposals, jurisdictions are expected to change their domestic tax rules in order to reect thrder to reflect the agreed position over the course of the next few years. Several jurisdictions in which the Group operates have introduced draft legislation which would implement changes impactful to the Group with effect from 1 January 2025, although this legislation has not been substantively enacted at the balance sheet date. If legislation is substantively enacted, it could change the existing division of taxing rights to which the Group is subject, and consequently have a material impact on the Group’s tax expense and effective rate of income tax in future periods. The Group seeks to maintain an open dialogue with the relevant tax authorities and to resolve any issues arising promptly. The Group recognises uncertain tax provisions where there is uncertainty that a tax treatment will be accepted under local law, including matters which are under discussion with the tax authorities. Based on facts and circumstances at the balance sheet date, the range of the total exposure is estimated between $23n $23 million and $477 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. 3 Management of risk 3.4 Capital risk management continued | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Notes to the consolidated nancial statements 193Hiscox Ltd Report and Accounts 2022 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 sing the financial reporting performance of, and allocation of resources to, each business segment. The Group’s four primary business segments are identied as 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 ne art and non-US household ihe fine art and non-US household insurance business written through Syndicate 33. Hiscox USA comprises commercial, property and specialty business written by Hiscox Insurance Company Inc. and Syndicate 3624. A Hiscox London Market comprises the internationally traded insurance business written by the Group’s London-based underwriters via Syndicate 33, including lines in property, marine and energy, casualty and other specialty insurance lines. A Hiscox Re & ILS is the reinsurance division of the Hiscox Group, combining the underwriting platforms in Bermuda and London. The segment comprises the performance of Hiscox Insurance Company (Bermuda) Limited, excluding the internal quota share arrangements, with the reinsurance contracts written by Syndicate 33. In addition, the healthcare and casualty reinsurance contracts previously written in Bermuda on Syndicate capacity are also included. The segment also includes the performance and fee income from the ILS funds, along with the gains and losses made as a result of the Group’s investment in the funds. A Corporate Centre comprises nancs finance costs and administrative costs associated with Group management activities and intragroup borrowings, as well as all foreign exchange gains and losses. All amounts reported on the following pages represent transactions with external parties only. In the normal course of trade, the Group’s entities enter into various reinsurance arrangements with one another. The related results of these transactions are eliminated on consolidation and are not included within the results of the segments. This is consistent with the information used by the chief operating decision-maker when evaluating the results of the Group. Performance is measured based on each reportable segment’s prot os profit or loss before tax. | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Notes to the consolidated nancial statements 194 Hiscox Ltd Report and Accounts 2022 (a) Prot bfit before tax by segment Year to 31 December 2022 Year to 31 December 2021 Hiscox Retail $m Hiscox London Market $m Hiscox Re & ILS $m Corporate Centre $m Total $m Hiscox Retail $m Hiscox London Market $m Hiscox Re & ILS $m Corporate Centre $m Total $m Gross premiums written 2,272.1 1,114.9 1,0 37.9 – 4,424.9 2,290.0 1,171.4 8 07. 8 – 4,269.2 Net premiums written 1,976.8 735.1 268.1 – 2,980.0 1,969.3 711.5 274.2 – 2,955.0 Net premiums earned 1,946.0 725.8 256.4 – 2,928.2 1,958.6 690.3 271.0 – 2,919.9 Investment result (98.9) (54.4) (34.0) – (187. 3 ) 26.9 15.8 8.8 (0.3) 51.2 Other income 15.9 7.4 20.8 2.4 46.5 22.8 19.1 11.3 3.6 56.8 Total income 1,863.0 678.8 243.2 2.4 2,787.4 2,008.3 725.2 291.1 3.3 3 ,0 27.9 Claims and claim adjustment expenses, net of reinsurance (874.8) (313.0) (140.5) – (1,328.3) (985.9) (333.9) (110.6) – (1,430.4) Expenses for the acquisition of insurance contracts (531.4) (207.7 ) (16.4) – (755.5) (524.9) (193.9) (15.9) – (734.7) Operational expenses (453.8) (102.5) (62.7) (23.3) (642.3) (435.7) (92.0) (64.7) (30.3) (622.7) Net foreign exchange gains – – – 30.6 30.6 – – – 0.7 0.7 Total expenses (1,860.0) (623.2) (219.6) 7.3 (2,695.5) (1,946.5) (619.8) (191.2) (29.6) ( 2,787.1) Total income less expenses 3.0 55.6 23.6 9.7 91.9 61.8 105.4 99.9 (26.3) 240.8 Finance costs (6.4) (2.6) (2.1) (37.0) (48.1) (6.9) (0.6) (1.4) (41.9) (50.8) Share of prot ofre of profit of associates after tax – – – 0.9 0.9 – – – 0.8 0.8 Profit/(loss) before tax (3.4) 53.0 21.5 (26.4) 44.7 54.9 104.8 98.5 ( 67.4) 190.8 4 Operating segments continued | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Notes to the consolidated nancial statements 195Hiscox Ltd Report and Accounts 2022 (a) Prot bfit before tax by segment continued The following charges are included within the consolidated income statement: Year to 31 December 2022 Year to 31 December 2021 Hiscox Retail $m Hiscox London Market $m Hiscox Re & ILS $m Corporate Centre $m Total $m Hiscox Retail $m Hiscox London Market $m Hiscox Re & ILS $m Corporate Centre $m Total $ m Depreciation 15.4 4.1 2.6 0.6 22.7 16.1 2.2 2.0 0.5 20.8 Amortisation of intangible assets 33.2 3.2 0.9 – 37. 3 32.5 3.7 1.0 – 37. 2 Impairment of intangible assets – – – – – 0.3 – – – 0.3 Total 48.6 7. 3 3.5 0.6 60.0 48.9 5.9 3.0 0.5 58.3 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 uctuan fluctuate from year to year and, consequently, presentation of the results at the 100% level removes any distortions arising therefrom. Year to 31 December 2022 Year to 31 December 2021 Hiscox Retail Hiscox London Market Hiscox Re & ILS Corporate Centre Total Hiscox Retail Hiscox London Market Hiscox Re & ILS Corporate Centre Total 100% ratio analysis Claims ratio (%) 44.4 43.8 50.9 – 44.8 50.0 49.5 40.0 – 48.9 Expense ratio (%) 50.4 41.0 30.7 – 45.8 48.9 39.6 28.0 – 44.3 Combined ratio (%) 94.8 84.8 81.6 – 90.6 98.9 89.1 68.0 – 93.2 4 Operating segments | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Notes to the consolidated nancial statements 196 Hiscox Ltd Report and Accounts 2022 (a) Prot bfit before tax by segment continued The claims ratio is calculated as claims and claim adjustment expenses, net of reinsurance, as aance, as a proportion of net premiums earned. The expense ratio is calculated as the total of expenses for the acquisition of insurance contracts and operational expenses, including protg profit-related pay, as a, as a proportion of net premiums earned. The combined ratio is the total of the claims and expenses ratios. All ratios are calculated using the 100% results. Costs allocated to Corporate Centre are non-underwriting-related costs and are not included within the combined ratio. The impact on prot befot on profit before tax of ax 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 2022 Year to 31 December 2021 Hiscox Retail $m Hiscox London Market $m Hiscox Re & ILS $m Hiscox Retail $m Hiscox London Market $m Hiscox Re & ILS $m At 100% level (note 4(b)) 1% change in claims or expense ratio 19.8 9.8 3.0 19.9 9.2 3.1 At Group level 1% change in claims or expense ratio 19.5 7.3 2.6 19.6 6.9 2.7 (b) 100% operating result by segment Year to 31 December 2022 Year to 31 December 2021 Hiscox Retail $m Hiscox London Market $m Hiscox Re & ILS $m Corporate Centre $m Total $m Hiscox Retail $m Hiscox London Market $m Hiscox Re & ILS $m Corporate Centre $m Total $m Gross premiums written 2,308.3 1,510.7 1,116.4 – 4,935.4 2,323.7 1,583.5 8 87. 9 – 4,795.1 Net premiums written 2,006.8 991.6 316.0 – 3,314.4 1,995.7 958.8 324.4 – 3,278.9 Net premiums earned 1,975.5 977.0 300.6 – 3,253.1 1,985.0 924.1 313.3 – 3,222.4 Investment result (105.1) (57.8) (36.2) – (19 9.1) 26.7 15.7 8.7 (0.3) 50.8 Other income 11.3 5.8 16.2 2.3 35.6 19.1 11.9 10.0 2.4 43.4 Claims and claim adjustment expenses, net of reinsurance (876.2) (427. 5) (153.1) – (1,456.8) (991.7) (4 57. 8) (125.2) – (1,574.7) Expenses for the acquisition of insurance contracts (539.6) (275.3) (23.3) – (838.2) (531.8) (252.5) (16.6) – (800.9) Operational expenses (456.8) (125.1) (68.8) (23.6) (674.3) (4 39.1) (114.0 ) (71.1) (28.6) (652.8) Net foreign exchange gains/(losses) – – – 22.0 22.0 – – – (1.2) (1.2) Total income less expenses 9.1 97.1 35.4 0.7 142.3 68.2 127. 4 119.1 (27.7 ) 287.0 Segment results at the 100% level presented above differ from those presented at the Group’s share at note 4(a) solely as aely as a result of the Group not owning 100% of the capacity of Syndicate 33 at Lloyd’s. 4 Operating segments | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Notes to the consolidated nancial statements 197Hiscox Ltd Report and Accounts 2022 4 Operating segments continued (c) Geographical information The Group’s operational segments underwrite business domestically in Bermuda and from locations in the UK, USA, Guernsey, France, Germany, Belgium, The Netherlands, Spain, Portugal, Ireland, Singapore and Thailand. The following table provides an analysis of the Group’s gross premium revenues earned by material geographical location from external parties: Gross premium revenues earned from external parties Year to 31 December 2022 Year to 31 December 2021 Hiscox Retail $m Hiscox London Market $m Hiscox Re & ILS $m Corporate Centre $m Total $m Hiscox Retail $m Hiscox London Market $m Hiscox Re & ILS $m Corporate Centre $m Total $m UK 757.7 84.7 38.3 – 880.7 815.7 90.8 31.9 – 938.4 Europe 476.5 81.8 52.2 – 610.5 456.1 70.9 33.6 – 560.6 USA 906.6 673.7 554.9 – 2,135. 2 934.3 719.4 4 87. 2 – 2,14 0.9 Rest of world 76.1 286.0 325.3 – 6 87.4 71.4 271.8 263.8 – 6 07. 0 2,216.9 1,126. 2 970.7 – 4,313.8 2, 27 7.5 1,152.9 816.5 – 4,246.9 The following table provides an analysis of the Group’s non-current assets by material geographical location excluding nding financial instruments, deferred tax assets, post-employment beneenefit assets, and rights arising under insurance contracts: Non-current assets 2022 total $m 2021 total $m UK 267. 5 222.5 Europe 59.9 46.5 USA 120.7 128.7 Rest of world 11.0 11.5 459.1 409.2 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Notes to the consolidated nancial statements 198 Hiscox Ltd Report and Accounts 2022 5 Net asset value per share and net tangible asset value per share 2022 net asset value (total equity) $m 2022 net asset value per share cents 2021 net asset value (total equity) $m 2021 net asset value per share cents Net asset value 2,416.7 701.2 2,539.3 739.8 Net tangible asset value 2,096.3 608.2 2,226.2 648.6 The net asset value per share is based on 344,672,172 shares (2021:: 343,232,855 shares), being the shares in issue at 311 Decemberr 2022, less those held in treasury and those held by the Group Employee Benee Benefit Trust. Net tangible assets comprise total equity excluding intangible assets. The net asset value per share expressed in pence is 582.9p (2021:: 546.2p). 6 Return on equity 2022 $m 2021 $m Prot for the yeaProfit for the year (all attributable to owners of the Company) 41.7 189.5 Opening total equity 2,539.3 2,353.9 Adjusted for the time-weighted impact of capital distributions and issuance of shares (54.9) (11.3) Adjusted opening total equity 2,484.4 2,342.6 Return on equity (%) 1.7 8 .1 The return on equity is calculated by using prot for the png profit for the period divided by the adjusted opening total equity. The adjusted opening total equity represents the equity on 1n 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. | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Notes to the consolidated nancial statements 199Hiscox Ltd Report and Accounts 2022 7 Investment result The total investment result for the Group comprises: Note 2022 $m 2021 $m Investment income including interest receivable 119.5 8 8.1 Net realised (losses)/gains on nins on financial investments at fair value through prot or losh profit or loss (54.1) 25.2 Net fair value losses on nann financial investments at fair value through prot or lugh profit or loss (254.2) (57. 9) Investment result – nant – financial assets 8 (188.8) 55.4 Net fair value gains on derivative nancve financial instruments 19 8.5 1.7 Investment expenses (7. 0 ) (5.9) Total result (187.3) 51.2 8 Analysis of return on nancial in8 Analysis of return on financial investments (a) The weighted average return on nan on financial investments for the year by currency, based on monthly asset values, was: 2022 % 2021 % US Dollar (2.2) 0.4 Sterling (3.5) 1.5 Euro (3.8) 1.1 Other (0.6) 0.0 (b) Investment return 2022 return $m 2022 yield % 2021 return $m 2021 yield % Debt and xDebt and fixed income holdings (169.1) (3.2) (11.4) (0.2) Equities and investment funds (29.6) ( 7.3) 66.2 11.6 Deposits with credit institutions/cash and cash equivalents 9.9 0.7 0.6 0.0 Investment result – nant – financial assets (188.8) (2.6) 55.4 0.7 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Notes to the consolidated nancial statements 200 Hiscox Ltd Report and Accounts 2022 9 Other income and operational expenses 2022 $m 2 0 2 1* $m Agency-related and other underwriting income 17.3 23.1 Prot commissionfit commission 3.7 4.8 Other income 25.5 28.9 Total other income 46.5 56.8 Wages and salaries 224.0 228.9 Social security costs 30.5 30.8 Pension cost – dened cont cost – defined contribution 16.0 17. 3 Pension cost – dened benet cost – defined benefit 0.4 1.0 Share-based payments 27. 2 24.0 Temporary staff costs 36.2 39.6 Travel and entertainment 12.4 5.6 Legal and professional 74.5 71.6 Ofce costsfice costs 14.2 13.6 Computer costs 84.4 63.3 Depreciation, amortisation and impairment 60.0 58.3 Other expenses 62.5 68.7 Operational expenses 642.3 622.7 * During 2022, the Group reviewed and reallocated certain items of other income and expenses to ensure consistency with management’s view of the categories. As a result, $9.5 million of expense has been reallocated from other expenses to computer costs in 2021 and $4.8 million has been reallocated from agency-related income to other income for 2021. Agency-related income and other underwriting income relates to commission received from a non-Group insurer by an insurance intermediary (‘agency’) for placement services, in limited cases claims handling services and results from the insurance-linked securities managed by the Group. Commission income associated with the placement services is recognised at the point in time when the agency has satises 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. Prot comProfit 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 signicnificant reversal. Other income includes management fees which are recognised when the investment management services are rendered to the ILS funds. No disposals were made during 2022 (2021: disposal of Crystal Ridge subsidiary for $21.4 million on 1 June 2021 for a gain of $5.2 million reported in other income). Other expenses include marketing, VAT expense, other staff costs, Lloyd’s costs and subscriptions. Total marketing expenditure (included in operational expenses and expenses for the acquisition of insurance contracts) for the year was $65.8 million (2021: $56.66 million). 10 Finance costs Note 2022 $m 2021 $m Interest charge associated with borrowings 17 32.2 30.7 Interest and expenses associated with bank borrowing facilities 2.5 7.5 Interest and charges associated with Letters of Credit 30 4.0 5.0 Other interest expenses* 9.4 7. 6 Finance costs 48.1 50.8 * Including interest expenses on lease liabilities of $1.9.9 million (2021: $1.2 million) and interest and charges of $8.48.4 million (2021: $6.46.4 million) associated with funds withheld balances. | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Notes to the consolidated nancial statements 201Hiscox Ltd Report and Accounts 2022 11 Auditor’s remuneration Fees payable to the Group’s external auditor, PwC, its member rmr firms and its associates (exclusive of VAT) include the following amounts recorded in the consolidated income statement: Group 2022 $m 2021 $m Amounts receivable by the auditors and its associates in respect of: The auditing of the accounts of the Group and its subsidiaries 5.6 4.6 All audit-related assurance services 0.3 0.3 All other non-audit services – – 5.9 4.9 Fees for the auditing of the Group and its subsidiaries in 2022 include audit work relating to the implementation of IFRS 17 Insurance Contracts of $1.6 million (2021: $0.3 million). The full audit fee payable for the Syndicate 33 and Syndicate 6104 audit has been included above, although an element of this is borne by the third-party participants in the Syndicate. 12 Goodwill and intangible assets Goodwill $m Syndicate capacity $m State authorisation licences $m Software and development costs $m Other $m Total $m At 1 January 2021 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 3 3.1 8.5 241.9 6.6 298.9 Year ended 31 December 2021 Opening net book amount 8.8 3 3.1 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 3 3.1 8.5 258.8 4.4 313.1 Year ended 31 December 2022 Opening net book amount 8.3 33.1 8.5 258.8 4.4 313.1 Additions – – – 59.2 2.7 61.9 Disposals – – – (1.1) – (1.1) Amortisation charges – – – (35.5) (1.8) (37.3) Foreign exchange movements (0.5) – – (14.9) (0.8) (16.2) Closing net book amount 7.8 33.1 8.5 266.5 4.5 320.4 At 31 December 2022 Cost 10.2 33.1 8.5 409.8 20.3 481.9 Accumulated amortisation and impairment (2.4) – – (143.3) (15.8) (161.5) Net book amount 7.8 33.1 8.5 266.5 4.5 320.4 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Notes to the consolidated nancial statements 202 Hiscox Ltd Report and Accounts 2022 Goodwill Goodwill is allocated to the Group’s cash-generating units (CGUs) identied acfied according to the smallest identiablntifiable unit to which cash ows are geh flows are generated. $7.0.0 million (2021:: $7.2.2 million) is allocated to the Lloyd’s corporate member entity CGU and $0.8U and $0.8 million (2021:: $1.11 million) is allocated to the CGUs within the Hiscox Retail business segment. Goodwill is considered to have an indenitedefinite life and as such is tested annually for impairment based on the recoverable amount which is considered to be the higher of the fair value, less cost to sell or value in use. During 2022, there was no impairment charge on goodwill (2021: $0.3 million). Value in use is considered to be the best indication of the recoverable amount for goodwill. Value in use calculations are performed using cash ow projeh flow projections based on nann financial forecasts. A discount factor, based on a weighted average cost of capital (WACC) for the Group, of 11.0% to 11.5%, depending on the underlying currency (2021:: 8.0% to 8.5%), has been applied to the cash sh flow projections to determine the net present value. The outcome of the value in use calculation is measured against the carrying value of the asset and, where the carrying value is in excess of the value in use, the asset is written down to this amount. Impairment assessments To test the sensitivity of the assessment, management ment 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sets 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 benec benefits over an indenite numbfinite number of future periods. This assumption is reviewed annually to determine whether the asset continues to have an indenite lindefinite 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 g cash flow projections based on business plans approved by management and discounted at the applicable WACC rate. At 31 December 2022, the value in use or the fair value less cost to sell exceeded the carrying value of Syndicate capacity recognised on the balance sheet. (b) US state authorisation licences As part of a business combination in 2007, the Group acquired insurance authorisation licences for 50 US states. This intangible asset has been allocated for impairment testing purposes to one individual CGU, being the Group’s North American underwriting business. The asset is not amortised, as the Group considers that economic benets winefits will accrue to the Group over an inden 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 indees 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 ow baseh flow based on business plans approved by management and discounted at the same rate used for goodwill. Key assumptions include new business growth, retention rates, market cycle and claims inaims inflation. The results of the test show there is no impairment. 12 Goodwill and intangible assets continued | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Notes to the consolidated nancial statements 203Hiscox Ltd Report and Accounts 2022 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 specic sofcific 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 beneenefits that are attributable to the asset will set 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on of a project. Additionally, at the end of each reporting period, the Group reviews the positions for any indication of impairment, and as a result of this no impairment was provided for in 2022 (2021:: $nil). At 311 Decemberber 2022 there were $71.7 million of assets under development on which amortisation has yet to be charged (2021:: $27.3 million). The assets are expected to be recovered or settled more than 12 months after the reporting date and as such are considered to be non-current. (d) Rights to customer contractual relationships (included in other) Costs directly attributable to securing the intangible rights to customer contractual relationships are recognised as an intangible asset where they can be identidentified separately and measured reliably and it is probable that they will be recovered by directly related future prots. Tuture 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 identieentified, the carrying value is tested for impairment based on the recoverable amount which is considered to be the higher of the fair value less costs to sell or value in use. The asset’s value in use is considered to be the best indication of its recoverable amount. Value in use is calculated using the same method as described above for goodwill and the same discount rate used. The results of this test led to no impairment charge on intangible rights to customer contractual relationships in 2022 (2021: $nil). | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Notes to the consolidated nancial statements 204 Hiscox Ltd Report and Accounts 2022 13 Property, plant and equipment Land and buildings $m Leasehold improvements $m Furniture fittings and equipment and art $m Right-of-use assets: property $m Right-of-use assets: other $m Total $m 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 Year ended 31 December 2022 Opening net book amount 21.8 1.9 29.0 36.9 0.8 90.4 Additions – 0.1 20.8 51.4 1.3 73.6 Disposals – – (0.1) (0.8) – (0.9) Depreciation charge (1.1) (0.7) (4.3) (16.0) (0.6) (22.7) Foreign exchange movements (2.4) – (2.4) (2.5) – (7.3) Closing net book amount 18.3 1.3 43.0 69.0 1.5 133.1 At 31 December 2022 Cost 26.6 13.4 80.7 113.5 3.3 237.5 Accumulated depreciation (8.3) (12.1) (37.7 ) (44.5) (1.8) (104.4) Net book amount 18.3 1.3 43.0 69.0 1.5 133.1 The Group’s land and buildings assets relate to freehold property in the UK. There was no impairment charge during the year (2021:: $nil). The assets are expected to be recovered or settled more than 12 months after the reporting date and as such are considered to be non-current. The income from subleasing right-of-use assets amounted to $0.6ed to $0.6 million (2021:: $0.77 million). 14 Subsidiaries, associates and interests in other entities This note provides details of the Syndicates and Special Purpose Insurers (SPI) managed by the Group, the acquisition and disposal of subsidiaries and associates during the year and investments in associates. (a) Subsidiaries Hiscox Dedicated Corporate Member Limited (HDCM) underwrites as a corporate member of Lloyd’s on the main Syndicates managed by Hiscox Syndicates Limited (the main managed Syndicates numbered 33 and 3624). As at 311 Decemberer 2022, HDCM owned 72.6% of Syndicate 33 (2021:: 72.6%), and 100% of Syndicate 3624 (2021:: 100%). In view of the several but not joint liability of underwriting members at Lloyd’s for the transactions of Syndicates in which they participate, the Group’s attributable share of the transactions, assets and liabilities of these Syndicates has been included in the ned 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, dened ps, defined prot commrofit 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 nas financial statements. (b) SPIs The Kiskadee Diversied FunThe Kiskadee Diversified Fund and Kiskadee Select Fund were launched in 2014 to provide investment opportunities to institutional investors in property catastrophe reinsurance and insurance-linked strategies. The funds are managed by Hiscox Re Insurance Linked Strategies Limited (formerly known as Kiskadee Investment Managers Limited) which is a wholly owned subsidiary of the Group. | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Notes to the consolidated nancial statements 205Hiscox Ltd Report and Accounts 2022 14 Subsidiaries, associates and interests in other entities (b) SPIs continued The Kiskadee Latitude Fund was launched in 2019 to give investors access to a more diverse portfolio of insurance and reinsurance risks, with less focus on pure property catastrophe risk. The fund is managed by Hiscox Re Insurance Linked Strategies Limited which is a wholly owned subsidiary of the Group. The Group determined that it does not control the Kiskadee Diversied Fol 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mber 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 naer financial markets by investing primarily in a diversied, sified, worldwide property catastrophe reinsurance and retrocession portfolio, including a portion of non-catastrophe reinsurance. These funds are segregated accounts of Kiskadee ILS Fund SAC Ltd, which is managed by Hiscox Re Insurance Linked Strategies Limited, a wholly owned subsidiary of the Group. The Group determined that it does control these funds and hence they are consolidated. As at 311 Decemberer 2022, the Group recognised a nased a financial asset at fair value of $45.345.3 million (2021:: $50.9 million) in relation to its investment in the unconsolidated funds (note 17). In assessing the maximum exposure to loss from its interest in the funds, the Group has determined it is no greater than the fair value recognised as at the balance sheet date. The total size of the unconsolidated funds was $600 million at 311 Decemberer 2022 (2021:: $593$593 million). In addition to the return on the nan on the financial asset, the Group also receives fee income through Hiscox Re Insurance Linked Strategies Limited and Hiscox Insurance Company (Bermuda) Limited, both wholly owned subsidiaries, under normal commercial terms. The Group is exposed to credit risk associated with reinsurance recoverables on risks fronted for the SPIs. Note 3.3(d) discusses how the Group manages credit risk associated with reinsurance assets. The operations of the funds and SPIs are nad SPIs are financed through the issuance of preference shares to external investors. The Group does not intend to provide any further nar financial support to the funds or SPIs. (c) Investments in associates Year ended 31 December 2022 $m 2021 $m At beginning of year 5.7 4.9 Distributions received (0.3) (0.2) Net prot fNet profit from investments in associates 0.9 0.8 Foreign exchange movements (0.7) 0.2 At end of year 5.6 5.7 The Group’s interests in its principal associates, all of which are unlisted, were as follows: 100% results % interest held at 31 December Assets $m Liabilities $m Revenues $m Profit after tax $m 2022 Associates incorporated in the UK from 32% to 35% 10.3 6.7 10.9 0.9 Associates incorporated in Europe from 26% to 35% 8.6 5.4 4.1 2.0 Total at the end of 2022 18.9 12.1 15.0 2.9 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 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. | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Notes to the consolidated nancial statements 206 Hiscox Ltd Report and Accounts 2022 15 Deferred acquisition costs 2022 2021 Gross $m Reinsurance $m Net $m Gross $m Reinsurance $m Net $m Balance deferred at 1 January 436.9 (110.0) 326.9 439.2 (106.9) 332.3 Acquisition costs incurred in relation to insurance contracts written 1,041.2 (254.7) 786.5 1,021.3 (288.2) 733.1 Acquisition costs expensed to the income statement (1,015.8) 260.3 (755.5) (1,017.9 ) 283.2 (734.7) Foreign exchange and other adjustments (12.2) 1.9 (10.3) (5.7) 1.9 (3.8) Balance deferred at 31 December 450.1 (102.5) 347.6 436.9 (110.0) 326.9 The deferred amount of insurance contract acquisition costs attributable to reinsurers of $102.502.5 million (2021:: $110.0 million) is not eligible for offset against the gross balance sheet asset and is included separately within trade and other payables (note 24). The net amounts expected to be recovered before and after one year are estimated as follows: 2022 $m 2021 $m Within one year 263.2 245.6 After one year 84.4 81.3 347.6 326.9 16 Reinsurance assets Note 2022 $m 2021 $m Reinsurers’ share of insurance liabilities 3,900.1 3,908.5 Provision for non-recovery and impairment (0.3) (0.5) Reinsurance assets 23 3,899.8 3,908.0 The amounts expected to be recovered before and after one year, based on historical experience, are estimated as follows: Within one year 1,991.0 1,919.5 After one year 1,908.8 1,988.5 3,899.8 3,908.0 Amounts due from reinsurers in respect of outstanding premiums and claims already paid by the Group are included in loans and receivables (note 18). The Group recognised a gain during the year of $0.2e year of $0.2 million (2021: loss of $0.11 million) due to movement on the provision for non-recovery and impairment. During the year, the Group completed two legacy portfolio transactions. Details of these transactions are disclosed in note 23. 17 Financial assets and liabilities Financial assets designated at fair value through prot or losh profit or loss are measured at fair values, with all changes from one accounting period to the next being recorded through the income statement. Note 2022 $m 2021 $m Debt and xDebt and fixed income holdings 5,426.6 5,528.1 Equities and investment funds 33 9.1 461.2 Total investments 5,765.7 5,989.3 Insurance-linked funds 45.3 50.9 Derivative nanve financial instruments 19 1.1 1.1 Total notal financial assets carried at fair value 5,812.1 6,041.3 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Notes to the consolidated nancial statements 207Hiscox Ltd Report and Accounts 2022 17 Financial assets and liabilities continued The effective maturity of the debt and xed incd fixed income holdings due within and after one year are as follows: 2022 $m 2021 $m Within one year 1,355.5 1,111.2 After one year 4,071.1 4,416.9 5,426.6 5,528.1 Equities, investment funds and insurance-linked securities do not have any maturity dates. The effective maturity of all other nafinancial assets are due within one year. An analysis of the credit risk and contractual maturity proley profiles of the Group’s nas financial instruments is given in notes 3.3(d) and 3.3(e). Financial liabilities of the Group are: Note 2022 $m 2021 $m Derivative nanve financial instruments 19 0.3 0.2 Financial liabilities carried at fair value 0.3 0.2 2022 $m 2021 $m Borrowings 628.8 74 3.7 Accrued interest on borrowings 7.1 2.8 Financial liabilities carried at amortised cost 635.9 746.5 Total naotal financial liabilities 636.2 746.7 All of the All of the financial liabilities carried at fair value are due within one year. The long-term debt issued on 14 March 2018 was repaid during the year, and all the remaining borrowings are due after one year. Accrued interest on long-term debt is due within one year. On 244 Novemberer 2015, the Group issued £275.05.0 million 6.125% xed% fixed-to-oating rate cato-floating rate callable subordinated notes due 2045, with a rwith a first call date of 2025. The notes bear interest from, and including, 244 Novemberber 2015 at a5 at a xed rate of 6.fixed rate of 6.125% per annum annually in arrears starting 244 Novemberber 2016 up until the rp until the first call date in November 2025 and thereafter at a oatinter 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 on each floating interest payment date. On 25On 25 Novemberr 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4 Marchh 2018, the Group issued £275.05.0 million 2% notes due Decemberr 2022. The notes were redeemed on the maturity date at their principal amount together with accrued interest. On 22 September 2022, the Group issued £250.0 million 6% notes due September 2027. The notes will be redeemed on the maturity date at their principal amount together with accrued interest. The notes bear interest from, and including, 22 September 2022 at a xed rate of 6er 2022 at a fixed rate of 6% per annum annually in arrears starting 22 September 2022 until maturity on 22 September 2027. On 22 September 2022, the notes were admitted for trading on the Luxembourg Stock Exchange’s Euro MTF. The notes were rated BBB+ by S&P as well as by Fitch. The fair value of the borrowings is estimated at $623.1 million (2021:: $797. 3  million). The fair value measurement is classied ement 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. | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Notes to the consolidated nancial statements 208 Hiscox Ltd Report and Accounts 2022 17 Financial assets and liabilities continued The decrease in the carrying value of the borrowings and accrued interest during the year comprises a drawdown of new borrowings of $279.1 million (2021: $nil), repayment of short-term borrowings of $336.6 million (2021: repayment of $195.7 million), the amortisation of the difference between the net proceeds received and the redemption amounts of $0.9 million (2021: $0.8 million), the increase in accrued interest of $6.5 million (2021: reduction of $0.1 million) less exchange movements of $60.5 million (2021: less exchange movements of $4.6 million). Note 10 includes details of the interest expense for the year included in nand in finance costs. Investments at 311 December are denominated in the following currencies at their fair value: 2022 $m 2021 $m Debt and xDebt and fixed income holdings US Dollars 3,932.4 3,890.0 Sterling 821.5 9 57. 9 Euro and other currencies 672.7 680.2 5,426.6 5,528.1 Equities and investment funds US Dollars 188.2 206.9 Sterling 117.0 223.0 Euro and other currencies 33.9 31.3 33 9.1 461.2 Total investments 5,765.7 5,989.3 18 Loans and receivables including insurance receivables 2022 $m 2021 $m Gross receivables arising from insurance and reinsurance contracts 1,539.5 1,568.9 Provision for impairment (7.0) ( 7.3 ) Net receivables arising from insurance and reinsurance contracts 1,532.5 1,561.6 Due from contract holders, brokers, agents and intermediaries 899.7 918.3 Due from reinsurance operations 632.8 643.3 1,532.5 1,561.6 Prepayments and accrued income 29.9 26.0 Other loans and receivables: Net prot commission receivableofit commission receivable 5.9 4.9 Accrued interest 25.6 23.7 Share of Syndicates’ other debtors’ balances 28.3 25.3 Other debtors including related party amounts 49.4 36.7 Total loans and receivables including insurance receivables 1,671.6 1,678.2 The amounts expected to be recovered before and after one year are estimated as follows: Within one year 1,548.4 1,500.4 After one year 123.2 17 7.8 1,671.6 1,678.2 There is no signicgnificant concentration of credit risk with respect to loans and receivables as the Group has as a large number of internationally dispersed debtors. The movement in the provision for impairment allowance for receivables during the year ended 31 December 2022 is due to foreign exchange movements (2021: increase in allowance of $2.2 million). The carrying amounts disclosed above are reasonably approximate to the fair value at the reporting date. | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Notes to the consolidated nancial statements 209Hiscox Ltd Report and Accounts 2022 19 Derivative nancial instrumente financial instruments The Group entered into both exchange-traded and over-the-counter derivative contracts for a number of purposes during 2022. The Group had the right and intention to settle each contract on a net basis. The assets and liabilities of these contracts at 311 Decemberr 2022 all mature within one year of the balance sheet date and are detailed below: 31 December 2022 Gross contract notional amount $m Fair value of assets $m Fair value of liabilities $m Net balance sheet position $m Derivative nanciivative financial instruments included on balance sheet Foreign exchange forward contracts 8.2 – (0.3) (0.3) Interest rate futures contracts 34.9 1.1 – 1.1 The foreign exchange forward contracts are represented by gross fair value of assets and liabilities as detailed below: Gross fair value of assets 0.8 6.4 7. 2 Gross fair value of liabilities (0.8) (6.7) ( 7.5 ) – (0.3) (0.3) 31 December 2021 Gross contract notional amount $m Fair value of assets $m Fair value of liabilities $m Net balance sheet position $m Derivative nancial inste 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 Foreign exchange forward contracts During the current and prior year, the Group entered into ad 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ell a xed amfixed amount of the relevant currency for Sterling at pre-agreed future exchange rates. The Group made amade a gain on these forward contracts of $1.3 million (2021: gain of $0.2in of $0.2 million) as included in the investment result in note 7. There was no initial purchase cost associated with these instruments. Interest rate futures contracts To substantially hedge the interest rate risk the Group is exposed to, it continued to sell a number of government bond futures denominated in a range of currencies. All contracts are exchange traded and the Group made ap made a gain on these futures contracts of $7.2 millionlion (2021:: gain of $1.5 million) as included in the investment result in note 7. Equity index options During the year, no equity index futures were purchased. | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Notes to the consolidated nancial statements 210 Hiscox Ltd Report and Accounts 2022 20 Fair value measurements In accordance with IFRS 13 Fair Value Measurement, the fair value of financial instruments, based on aed on a three-level fair value hierarchy that reflects the significance of the inputs used in measuring the fair value, is set out below. As at 31 December 2022 Level 1 $m Level 2 $m Level 3 $m Total $m Financial assets Debt and xDebt and fixed income holdings 1,122.4 4, 237.1 67.1 5,426.6 Equities and investment funds – 311.8 27. 3 339.1 Insurance-linked funds – – 45.3 45.3 Derivative nanve financial instruments – 1.1 – 1.1 Total 1,122.4 4,550.0 139.7 5,812.1 Financial liabilities Derivative nanve financial instruments – 0.3 – 0.3 Total – 0.3 – 0.3 As at 31 December 2021 Level 1 $m Level 2 $m Level 3 $m Total $m Financial assets Debt and xDebt and fixed income holdings 858.5 4,639.5 3 0.1 5,528.1 Equities and investment funds – 416.5 44.7 461.2 Insurance-linked funds – – 50.9 50.9 Derivative nanve financial instruments – 1.1 – 1.1 Total 858.5 5, 057.1 125.7 6,041.3 Financial liabilities Derivative nanve financial instruments – 0.2 – 0.2 Total – 0.2 – 0.2 The levels of the fair value hierarchy are denehy 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 signicgnificant inputs are based on market observable data; A Level 3 – fair values measured using valuation techniques for which signicant inficant inputs are not based on market observable data. The fair values of the Group’s 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rise a portfolio of stock investments in trading entities which are invested in various quoted and unquoted investments. The fair value of these investment funds is based on the net asset value of the fund as reported by independent pricing sources or the fund manager. Included within Level 1 of the fair value hierarchy are certain government bonds, treasury bills, corporate bonds having a quoted price in active markets, and exchange-traded equities which are measured based on quoted prices in active markets. The fair value of the borrowings carried at amortised cost is estimated at $623.11 million (2021:: $797.3.3 million) and is considered as Level 1 in the fair value hierarchy. Level 2 of the hierarchy contains certain government bonds, US government agencies, corporate securities, asset-backed securities and mortgage-backed securities. The fair value of these assets is based on the prices obtained from independent pricing sources, investment managers and investment custodians as discussed above. The Group records the unadjusted price provided and validates the price through augh a number of methods including aing 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n a limited number of transactions for those securities and as such the Group considers these instruments to have similar characteristics to those instruments classied as Levefied 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. | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Notes to the consolidated nancial statements 211Hiscox Ltd Report and Accounts 2022 Level 3 contains investments in limited partnerships, unquoted equity securities and insurance-linked funds which have limited observable inputs on which to measure fair value. Unquoted equities, including equity instruments in limited partnerships, are carried at fair value. Fair value is determined to be net asset value for the limited partnerships, and for the equity holdings it is determined to be the latest available traded price. The effect of changing one or more inputs used in the measurement of fair value of these instruments to another reasonably possible assumption would not be signiignificant. At 311 Decemberber 2022, the insurance-linked funds of $45.345.3 million represent the Group’s investment in the unconsolidated Kiskadee funds (2021:: $50.9$50.9 million) as described in note 14. The fair value of the Kiskadee funds is estimated to be the net asset value as at the balance sheet date. The net asset value is based on the fair value of the assets and liabilities in the fund. The majority of the assets of the funds are cash and cash equivalents. Signints. Significant inputs and assumptions in calculating the fair value of the assets and liabilities associated with reinsurance contracts written by the Kiskadee funds include the amount and timing of claims payable in respect of claims incurred and periods of unexpired risk. The Group has considered changes in the net asset valuation of the Kiskadee funds if reasonably different inputs and assumptions were used and has found that a 12% change to the fair value of the liabilities would increase or decrease the fair value of funds by $4.11 million. In certain cases, the inputs used to measure the fair value of ae 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 classiesified based on the lowest level of input that is signicaificant to the fair value measurement. The Group’s policy is to recognise transfers into and transfers out of fair value hierarchy levels at the end of the relevant reporting period during which the transfers are deemed to have occurred. During the year, investments of $25.9 million were transferred from Level 2 to Level 3 due to insufcificient observable data being available, as a result of reduced trading volumes. The following table sets forth as forth a reconciliation of opening and closing balances for nancialsing balances for financial instruments classied instruments classified under Level 3 of the fair value hierarchy: Financial assets 31 December 2022 Debt and fixed income holdings $m Equities and investment funds $m Insurance- linked funds $m Total $m Balance at 1 January 30.1 44.7 50.9 125.7 Fair value gains or losses through prot or losh profit or loss 1.3 (3.0) 1.3 (0.4) Foreign exchange (losses)/gains (1.2) (3.3) 0.1 (4.4) Settlements – (0.1) ( 7.0) ( 7.1) Transfers 36.9 (11.0) – 25.9 Closing balance 67.1 27.3 45.3 139.7 Unrealised gains and (losses) in the year on securities held at the end of the year 1.3 (2.4) 1.7 0.6 Financial assets 31 December 2021 Debt and fixed income holdings $m Equities and investment funds $m Insurance- linked funds $m Total $m Balance at 1 January – 45.5 63.2 108.7 Fair value gains or losses through prot or losh profit or loss 0.1 (0.3) – (0.2) Foreign exchange (losses)/gains – (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) 20 Fair value measurements continued | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Notes to the consolidated nancial statements 212 Hiscox Ltd Report and Accounts 2022 21 Cash and cash equivalents 2022 $m 2021 $m Cash at bank and in hand 1,276.0 1, 287. 3 Short-term deposits 74.9 13.4 Total 1,350.9 1,300.7 The Group holds its cash deposits with a with a well-diversied rwell-diversified range of banks and nancial inst 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 2022 31 December 2021 Group Share capital $m Number of shares 000 Share capital $m Number of shares 000 Authorised ordinary share capital of 6.5p (2021: 6.5p) 425.8 3,692,308 425.8 3,692,308 Issued ordinary share capital of 6.5p (2021: 6.5p) 38.7 354,067 38.7 353,986 The amounts presented in the equity section of the Group’s consolidated balance sheet relate to Hiscox Ltd, the legal parent company. Changes in Group share capital and contributed surplus Ordinary share capital $000 Share premium $000 Contributed surplus $000 At 1 January 2021 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 Employee share option scheme – proceeds from shares issued 1 153 – Scrip Dividends to owners of the Company 5 687 – At 31 December 2022 38,667 517,6 57 183,969 Contributed surplus is as a distributable reserve and arose on the reverse acquisition of Hiscox plc on 122 Decemberer 2006. The Company relies on dividend streams from its subsidiary companies to provide the cash ow requih 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 Benet Tfit Trust purchased nil shares (2021: nil shares) to facilitate the settlement of vesting awards under the Group’s Performance Share Plan. As the Trust is consolidated into the Group nancp 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 beneciaries of the beneficiaries of the Trust. Equity structure of Hiscox Ltd Note Number of ordinary shares in issue 2022 000 Number of ordinary shares in issue 2021 000 At 1 January 353,986 353,955 Employee share option scheme – ordinary shares issued 18 11 Scrip Dividends to owners of the Company 29 63 20 At 31 December 354,067 353,986 All issued shares are fully paid. | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Notes to the consolidated nancial statements 213Hiscox Ltd Report and Accounts 2022 Performance Share Plan awards Performance Share Plan awards are granted to Directors and senior employees. No exercise price is attached to performance plan awards, although their attainment is conditional on the employee completing three years’ service (the vesting period) and the Group achieving net asset value targets for awards from 2018 to 2020. Awards granted in 2021 and 2022 require both net asset value and total shareholder return targets to be met. Share options are also conditional on the employees completing two or three years’ service (the vesting period) or less under exceptional circumstances (death, disability, retirement or redundancy). The options are exercisable starting three years from the grant date only if the Group achieves its targets of return on equity or net asset value; the options have ans have a contractual option term of ten years. The Group has no legal or constructive obligation to repurchase or settle the options in cash. Share awards (HSX:26) granted in 2022 are conditional upon employees completing three years’ service and maintaining a satisfactory personal performance rating. No other targets are required to be met. In accordance with IFRS 2, the Group recognises an expense for the fair value of shares, share options and Performance Share Plan award instruments issued to employees, over their vesting period through the income statement. The amount recognised in the consolidated income statement during the year was an expense of $27.2.2 million (2021: expense of $24.00 million). This comprises an expense of $15.0 million (2021: expense of $16.6 million) in respect of Performance Share Plan awards, an expense of $2.9.9 million (2021:: expense of $7.4 million) in respect of share option awards and $9.3 million (2021: $nil) in respect of employee share awards. The Group has applied the principles outlined in the Black-Scholes option pricing model when determining the fair value of each share option instrument. For the fair value pricing of performance share plans, the Group uses the share price on the date of grant of the options. For any options contingent on achieving targets linked to total shareholder returns, the fair value price on date of grant is adjusted to take account of the probability of achieving the performance targets. The range of principal Group assumptions applied in determining the fair value of share-based payment instruments granted during the year under review are: Assumptions affecting inputs to fair value models 2022 2021 Annual risk-free rates of return and discount rates (%) 1.36-3.00 0.18-0.26 Long-term dividend yield (%) 1.27 1.46 Expected life of options (years) 3.25 3.25 Implied volatility of share price (%) 49.2 46.2 Weighted average share price (p) 981.1 865.3 The weighted average fair value of each share option granted during the year was 418.3p (2021:: 317.5p). The weighted average fair value of each Performance Share Plan award granted during the year was 983.0p (2021:: 862.3p). Movements in the number of share options and Performance Share Plan awards during the year and details of the balances outstanding at 311 Decemberber 2022 for the Executive Directors are shown in the annual report on remuneration 2022. The total number of options and Performance Share Plan awards outstanding is 10,325,738 (2021:: 9,743,754) of which 1,287,068 are exercisable (2021:: 1,629,224). The total number of SAYE options outstanding is 2,650,322 (2021:: 2,414,729) and employee share awards is 4,765,411 (2021: nil). The implied volatility assumption is based on historical data for periods of between ween five and ten years immediately preceding grant date. 22 Share capital continued | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Notes to the consolidated nancial statements 214 Hiscox Ltd Report and Accounts 2022 23 Insurance liabilities and reinsurance assets Note 2022 $m 2021 $m Gross Claims reported and claim adjustment expenses 2,486.0 2,5 06.1 Claims incurred but not reported 4,474.2 4,539.8 Unearned premiums 1,876.4 1,822.5 Total insurance liabilities, gross 8,836.6 8,868.4 Recoverable from reinsurers Claims reported and claim adjustment expenses 1,175.1 1,14 3.3 Claims incurred but not reported 2,261.9 2,349.5 Unearned premiums 462.8 415.2 Total reinsurers’ share of insurance liabilities 16 3,899.8 3,908.0 Net Claims reported and claim adjustment expenses 1,310.9 1,362.8 Claims incurred but not reported 2,212.3 2,19 0.3 Unearned premiums 1,413.6 1,4 07. 3 Total insurance liabilities, net 4,936.8 4,960.4 The net amounts expected to be recovered and settled before and after one year, based on historical experience, are estimated as follows: 2022 $m 2021 $m Within one year 2,878.4 3,155.1 After one year 2,058.4 1,805.3 4,936.8 4,960.4 The gross claims reported and claim adjustment expenses liability and the liability for claims incurred but not reported are net of expected recoveries from salvage and subrogation. The amounts for salvage and subrogation at the end of 2022 and 2021 are not material. | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Notes to the consolidated nancial statements 215Hiscox Ltd Report and Accounts 2022 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 owsh 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 nand 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 inationanflationary 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, speciecific 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 reeriod to reflect emerging claims experience. Changes in expected claims may result in a reduction or an increase in the ultimate claim costs and a release or an increase in reserves in the period in which the change occurs. Booked reserves are held above the best estimate to help mitigate the uncertainty within the reserve estimates. As the best estimate matures and becomes more certain, the management margin is gradually released in line with the reserving policy. This approach is consistent with last year. The margin included in the insurance liabilities at 31 December 2022 was 8.9% above the best estimate (2021: 11.7%). (b) Claims development tables The development of insurance liabilities provides arovides a measure of the Group’s ability to estimate the ultimate cost of claims. The Group analyses actual claims development compared with previous estimates on an accident year basis. This exercise is performed to include the liabilities of Syndicate 33 at the 100% level regardless of the Group’s actual level of ownership. Analysis at the 100% level is required in order to avoid distortions arising from reinsurance to close arrangements which subsequently increase the Group’s share of ultimate claims for each accident year, three years after the end of that accident year. The top half of each table, on the following pages, illustrates how estimates of ultimate claims costs for each accident year have changed at successive year ends. The bottom half reconciles cumulative claims costs to the amounts still recognised as liabilities. AA reconciliation of the liability at the 100% level to the Group’s share, as included in the Group balance sheet, is also shown. 23 Insurance liabilities and reinsurance assets continued | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Notes to the consolidated nancial statements 216 Hiscox Ltd Report and Accounts 2022 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% Accident year 2013 $m 2014 $m 2015 $m 2016 $m 2017 $m 2018 $m 2019 $m 2020 $m 2021 $m 2022 $m Total $m Estimate of ultimate claims costs as adjusted for foreign exchange* at end of accident year: 1,276.2 1,396.5 1,504.6 1,874. 2 3,317.8 3,032.5 3,268.3 3 ,707. 8 2,982.5 2,923.8 one year later 1,164.3 1,188.7 1,370.5 1,665.0 3,035.4 3,469.9 2, 977. 5 3,685.9 2,803.6 – two years later 1,039.6 1,10 0. 2 1,239.2 1,57 7.6 3,006.6 3,288.0 2,809.4 3,442.9 – – three years later 97 7.1 1,053.4 1,234.7 1,609.7 2,921.5 3,075.8 2,727.4 – – – four years later 922.7 1,029.4 1,251.6 1,6 47.4 2,888.7 2,9 97.5 – – – – ve yeafive years later 9 01.1 1,012.1 1,278.8 1,642.8 2,851.7 – – – – – six years later 8 97. 2 9 97.4 1,276.3 1,632.8 – – – – – – seven years later 900.0 998.8 1,276.4 – – – – – – – eight years later 8 97. 4 995.4 – – – – – – – – nine years later 881.7 – – – – – – – – – Current estimate of cumulative claims 881.7 995.4 1,276.4 1,632.8 2,851.7 2,9 97. 5 2,727.4 3,442.9 2,803.6 2,923.8 22,533.2 Cumulative payments to date (871.9) (944.4) (1,152.8) (1,468.7) (2,419.8) (2,349.8) (1,895.1) (1,961.9) (1,166. 2) (488.3) (14,718.9) Liability recognised at 100% level 9.8 51.0 123.6 164.1 431.9 6 47.7 832.3 1,481.0 1,6 37.4 2,435.5 7,814. 3 Liability recognised in respect of accident years before 2013 at 100% level 134.1 Total gross liability to external parties at 100% level 7,9 48.4 *The foreign exchange adjustment arises from the retranslation of the estimates at each date using the exchange rate ruling at 31 December 2022. Reconciliation of 100% disclosures above to Group’s share – gross Accident year 2013 $m 2014 $m 2015 $m 2016 $m 2017 $m 2018 $m 2019 $m 2020 $m 2021 $m 2022 $m Total $m Current estimate of cumulative claims 881.7 995.4 1,276.4 1,632.8 2,851.7 2,9 97.5 2,727.4 3,442.9 2,803.6 2,923.8 22,533.2 Less: attributable to external Names (93.5) (107.3 ) (137. 3 ) (178.6) (385.0) (370.4) (372.9) (409.7) (335.1) (358.2) (2,748.0) Group’s share of current ultimate claims estimate 788.2 888.1 1,13 9.1 1,454.2 2,466.7 2, 627.1 2,354.5 3,033.2 2,468.5 2,565.6 19,785.2 Cumulative payments to date (871.9) (944.4) (1,152.8) (1,468.7) (2,419.8) (2,349.8) (1,895.1) (1,961.9) (1,166. 2) (488.3) (14,718.9) Less: attributable to external Names 91.0 105.6 126.9 166.3 325.8 280.9 263.3 217. 2 152.9 64.7 1,794.6 Group’s share of cumulative payments (780.9) (838.8) (1,025.9) (1,302.4) (2,094.0) (2,068.9) (1,631.8) (1,744.7) (1,013.3) (423.6) (12,924.3) Liability recognised on Group’s balance sheet 7. 3 49.3 113. 2 151.8 372.7 558.2 722.7 1,288.5 1,455.2 2,142.0 6,860.9 Liability for accident years before 2013 recognised on Group’s balance sheet 99.3 Total Group liability to external parties included in balance sheet – gross 6,960.2 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Notes to the consolidated nancial statements 217Hiscox Ltd Report and Accounts 2022 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% Accident year 2013 $m 2014 $m 2015 $m 2016 $m 2017 $m 2018 $m 2019 $m 2020 $m 2021 $m 2022 $m Total $m Estimate of ultimate claims costs as adjusted for foreign exchange* at end of accident year: 1,083.8 1,126.0 1,203.4 1,411.6 1,788.3 1,732.5 1,725.7 2,113.3 1,710.9 1,719.7 one year later 9 62.1 989.4 1,112.1 1,282.4 1,583.2 1,75 3.1 1,656.3 1,984.9 1,623.0 – two years later 863.1 8 97. 8 1,022.0 1,215.3 1,563.6 1,708.9 1,464.2 1,814.7 – – three years later 799.4 845.2 1,015.8 1,239.7 1,563.4 1,532.8 1,415.8 – – – four years later 794.1 820.1 1,015.9 1,279.5 1,450.9 1,459.6 – – – – ve yeafive years later 770.7 798.7 1,044.8 1,213.4 1,363.4 – – – – – six years later 769.4 793.5 1,0 07.6 1,142. 2 – – – – – – seven years later 769.9 782.1 963.5 – – – – – – – eight years later 754.2 754.3 – – – – – – – – nine years later 741.0 – – – – – – – – – Current estimate of cumulative claims 741.0 754.3 963.5 1,142. 2 1,363.4 1,459.6 1,415.8 1,814.7 1,623.0 1,719.7 12,9 97. 2 Cumulative payments to date (734.3) (713.4) (883.2) (1,083.9) (1,273.3) (1,216.5) (1,072.3) (1,068.2) (738.5) (363.9) (9,147.5 ) Liability recognised at 100% level 6.7 40.9 80.3 58.3 90.1 24 3.1 343.5 746.5 884.5 1,355.8 3,849.7 Liability recognised in respect of accident years before 2013 at 100% level 85.6 Total net liability to external parties at 100% level 3,935.3 *The foreign exchange adjustment arises from the retranslation of the estimates at each date using the exchange rate ruling at 31 December 2022. Current estimate of cumulative claims in the table above has been impacted by the legacy portfolio transactions taken out in 2022 and 2021, see note 23.2. Reconciliation of 100% disclosures above to Group’s share – net of reinsurance Accident year 2013 $m 2014 $m 2015 $m 2016 $m 2017 $m 2018 $m 2019 $m 2020 $m 2021 $m 2022 $m Total $m Current estimate of cumulative claims 741.0 754.3 963.5 1,142. 2 1,363.4 1,459.6 1,415.8 1,814.7 1,623.0 1,719.7 12,9 97. 2 Less: attributable to external Names (74.6) (76.0) (101.1) (113.6) (131.5) (131.5) (169.4) (187. 2) (161.2) (186.0) (1,332.1) Group’s share of current ultimate claims estimate 666.4 678.3 862.4 1,028.6 1,231.9 1,328 .1 1,246.4 1,6 27. 5 1,461.8 1,533.7 11,665.1 Cumulative payments to date (734.3) (713.4) (883.2) (1,083.9) (1,273.3) (1,216.5) (1,072.3) (1,068.2) (738.5) (363.9) (9,147.5 ) Less: attributable to external Names 73.5 79.3 98.6 114.9 121.0 104.3 119.4 92.6 83.2 45.1 931.9 Group’s share of cumulative payments (660.8) (63 4.1) (784.6) (969.0) (1,152.3) (1,112.2) (952.9) (975.6) (655.3) (318.8) (8,215.6) Liability recognised on Group’s balance sheet 5.6 44.2 77. 8 59.6 79.6 215.9 293.5 651.9 806.5 1,214.9 3,449.5 Liability for accident years before 2013 recognised on Group’s balance sheet 73.7 Total Group liability to external parties included in balance sheet – net* 3,523.2 *This represents the claims element of the Group’s insurance liabilities and reinsurance assets. | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Notes to the consolidated nancial statements 218 Hiscox Ltd Report and Accounts 2022 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: 2022 2021 Year ended 31 December Gross $m Reinsurance $m Net $m Gross $m Reinsurance $m Net $m Total at beginning of year 7,0 45.9 (3,492.8) 3,553.1 7, 291.4 (3,213.0) 4,078.4 Claims and claim adjustment expenses for the year 2,110.1 (781.8) 1,328.3 2,185.5 (755.1) 1,430.4 Cash (paid)/received for claims settled in the year (2,026.4) 1,028.0 (998.4) (2,331.8) 1,082.8 (1,249.0) Acquisitions, divestments and transfers – (249.6) (249.6) – (639.0) (639.0) Foreign exchange and other adjustments (169.4) 59.2 (110.2) (99.2) 31.5 ( 67.7 ) Total at end of year 6,960.2 (3,4 37.0 ) 3,523.2 7,0 4 5.9 (3,492.8) 3,55 3.1 Claims reported and claim adjustment expenses 2,486.0 (1,175.1) 1,310.9 2,5 06.1 (1,143.3) 1,362.8 Claims incurred but not reported 4,474.2 (2,261.9) 2,212.3 4,539.8 (2,349.5) 2,190.3 Total at end of year 6,960.2 (3,4 37.0 ) 3,523.2 7,0 4 5.9 (3,492.8) 3,55 3.1 The insurance claims expense reported in the consolidated income statement is comprised as follows: 2022 2021 Year ended 31 December Gross $m Reinsurance $m Net $m Gross $m Reinsurance $m Net $m Current year claims and claim adjustment expenses 2,657.4 (1,090.0) 1,567.4 2,775.0 (1,172.8) 1,602.2 Over-provision in respect of prior-year claims and claim adjustment expenses (5 47.3) 308.2 (239.1) (558.0) 40 9.1 (148.9) Unexpired risk reserve – – – (31.5) 8.6 (22.9) Total at end of year 2,110.1 (781.8) 1,328.3 2,18 5.5 (755.1) 1,430.4 A reconciliation of the unearned premium reserves is as follows: 2022 2021 Gross $m Reinsurance $m Net $m Gross $m Reinsurance $m Net $m Balance deferred at 1 January 1,822.5 (415.2) 1,407. 3 1,822.0 (431.6) 1,390.4 Premiums written 4,424.9 (1,444.9) 2,980.0 4,269.2 (1,314.2) 2,955.0 Premiums earned through the income statement (4,313.8) 1,385.6 (2,928.2) (4,246.9) 1, 327.0 (2,919.9) Foreign exchange and other adjustments (57. 2) 11.7 (45.5) (21.8) 3.6 (18.2) Balance deferred at 31 December 1,876.4 (462.8) 1,413.6 1,822.5 (415.2) 1,4 07. 3 The amounts expected to be recovered before and after one year, based on historical experience, are included in the first table to this note 23. A reconciliation of the gross premiums written to net premiums earned is as follows: 2022 $m 2021 $m Gross premiums written 4,424.9 4,269.2 Outward reinsurance premiums (1,444.9) (1,314.2) Net premiums written 2,980.0 2,955.0 Change in gross unearned premium reserves (111.1) (22.3) Change in reinsurers’ share of unearned premium reserves 59.3 (12.8) Change in net unearned premium reserves (51.8) (35.1) Net premiums earned 2,928.2 2,919.9 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Notes to the consolidated nancial statements 219Hiscox Ltd Report and Accounts 2022 23 Insurance liabilities and reinsurance assets 23.2 Movements in insurance claims liabilities and reinsurance claims assets continued In determining the net claims, the Group estimates the reinsurers’ share of the claims by applying a consistent set of assumptions with those in determining the gross claims, considering the individual wording of the reinsurance treaties, and estimating default risks, as described in note 3.3(d). Changes to this set of assumptions and estimate could materially affect the amount of reinsurers’ share of the claims. During the year, the Group completed two legacy portfolio transactions securing coverage for potential adverse development on historical liabilities for selected lines of business. The Group concluded that the transactions transferred signicant transferred significant risks and accounts for the arrangements by recognising a reinsurance asset, a funds-withheld balance in trade and other payables, and a net loss at inception in reinsurance premium ceded. The impact on reinsurance assets is presented in the acquisitions, divestment and transfers line in the relevant table. | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Notes to the consolidated nancial statements 220 Hiscox Ltd Report and Accounts 2022 24 Trade and other payables Note 2022 $m 2021 $m Creditors arising out of direct insurance operations 90.4 96.3 Creditors arising out of reinsurance operations 1,243.7 1,152.2 1,334.1 1,248.5 Share of Syndicates’ other creditors’ balances 18.3 2.6 Social security and other taxes payable 52.4 49.3 Lease liabilities 79.9 46.5 Other creditors 47.1 19.8 197.7 118. 2 Reinsurers’ share of deferred acquisition costs 15 102.5 110.0 Accruals and deferred income 184.1 158.9 Total 1,818.4 1,635.6 The amounts expected to be settled before and after one year are estimated as follows: 2022 $m 2021 $m Within one year 1,372.5 1,062.3 After one year 445.9 573.3 1,818.4 1,635.6 The amounts expected to be settled after one year of the balance sheet date primarily relate to reinsurance creditors. The carrying amounts disclosed above are reasonably approximate to the fair value at the reporting date. The Group acts as both lessee and lessor in relation to various ofs 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 ows:h flows: 2022 $m 2021 $m Not later than one year 12.2 15.7 Later than one year and not later than ve yeaan five years 43.2 30.2 Later than ve yearan five years 36.9 7.8 Total undiscounted lease liabilities at 31 December 92.3 53.7 The cost relating to variable lease payments that do not depend on an index or a rate amounted to $nil in the year ended 311 Decemberr 2022 (2021: $nil). There were no leases with residual value guarantees (2021: none). The leases not yet commenced to which the Group is committed amounted to $0.8mounted to $0.8 million (2021: $60.0.0 million). Payments associated with short-term leases amounting to $1.1 million (2021:: $1.2.2 million) and leases of low-value assets amounting to $0.3 million (2021: $0.1 million) are recognised on a straight-line basis as an expense in pronse in profit or loss. | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Notes to the consolidated nancial statements 221Hiscox Ltd Report and Accounts 2022 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: 2022 $m 2021 $m Current tax Expense for the year 4.5 9.5 Adjustments in respect of prior years (1.7) (5.1) Total current tax expense 2.8 4.4 Deferred tax Expense for the year 0.7 3.6 Adjustments in respect of prior years (0.2) (3.7) Effect of rate change (0.3) (3.0) Total deferred tax expense/(credit) 0.2 (3.1) Total tax charged to the income statement 3.0 1.3 The standard rate of corporation tax in Bermuda is 0% whereas the effective rate of tax for the Group is 7% (2021: 1%). A reconciliation of the difference is provided below: 2022 $m 2021 $m Prot bProfit before tax 44.7 190.8 Tax calculated at the standard corporation tax rate applicable in Bermuda: 0% (2021: 0%) – – Effects of Group entities subject to overseas tax at different rates (11.3) 2.3 Impact of overseas tax rates on: Effect of rate change (0.3) (3.0) Expenses not deductible for tax purposes 1.6 2.5 Tax losses for which no deferred tax asset is recognised 11.6 9.3 Other 0.1 (1.5) Adjustment for share-based payments 3.1 0.5 Prior year tax adjustments (1.8) (8.8) Tax charge for the year 3.0 1.3 Included within the current tax, a provision is recognised for those matters for which the tax determination is uncertain but it is considered probable that there will be a future outow of futflow 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 lingsx 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 ct 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. | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Notes to the consolidated nancial statements 222 Hiscox Ltd Report and Accounts 2022 26 Deferred tax Net deferred tax assets 2022 $m 2021 $m Trading losses in overseas entities 28.4 29.1 Deferred tax assets 69.1 97.9 Deferred tax liabilities (43.8) (59.7) Total deferred tax asset 53.7 67. 3 Net deferred tax liabilities Deferred tax assets – (0.1) Deferred tax liabilities 0.2 0.2 Total net deferred tax liability 0.2 0.1 Deferred tax assets and deferred tax liabilities relating to the same tax authority are presented net in the Group’s balance sheet. Net Group deferred tax assets/(liabilities) analysed by balance sheet headings At 31 December 2021 $m Income statement (charge) /credit $m Recognised in other comprehensive income/equity $m Foreign exchange $m 2022 $m Trade and other payables 1.7 1.9 – (0.2) 3.4 Intangible assets – Syndicate capacity 1.6 (0.3) – (0.2) 1.1 Retirement benet obligatement benefit obligations 12.7 (1.6) (9.1) (1.1) 0.9 Open years of account 56.9 (41.9) – (7.0) 8.0 Unearned premium 11.2 1.2 – – 12.4 Loss reserve discounting 8.3 1.5 – – 9.8 Insurance contracts – technical reserves 5.0 1.6 – (0.3) 6.3 Financial assets – 3.4 – 0.1 3.5 Other items 0.5 24.5 (0.3) (1.0) 23.7 Total deferred tax assets 97. 9 (9.7) (9.4) (9.7) 69.1 Tangible assets (0.4) (2.6) – (0.3) (3.3) Financial assets (1.2) 1.2 – – – Reinsurance premiums (35.3) 26.0 – 4.4 (4.9) Deferred acquisition costs (22.4) (1.3) – – (23.7) Other items (0.4) (13.1) – 1.6 (11.9) Total deferred tax liabilities (59.7) 10.2 – 5.7 (43.8) Net total deferred tax assets/(liabilities) 38.2 0.5 (9.4) (4.0) 25.3 Trading losses in overseas entities 29.1 (0.6) – (0.1) 28.4 Net total deferred tax assets/(liabilities) 38.2 0.5 (9.4) (4.0) 25.3 Net deferred tax position asset/(liability) 67. 3 (0.1) (9.4) (4.1) 53.7 Technical reserves (0.2) – – – (0.2) Other 0.1 (0.1) – – – Net total deferred tax position (liabilities) (0.1) (0.1) – – (0.2) Net Group deferred tax asset/(liability) 67. 2 (0.2) (9.4) (4.1) 53.5 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Notes to the consolidated nancial statements 223Hiscox Ltd Report and Accounts 2022 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 benet obliefit obligation are recognised in the statement of comprehensive income to the extent that the movement corresponds to actuarial gains and losses recognised in the statement of comprehensive income. The total expense recognised outside the income statement is $6.5 million (2021: expense of $2.1 million), comprising $9.4 million deferred tax expense and $2.9 million current tax income (2021: $3.4 million deferred tax expense and $1.3 million current tax income). Deferred tax assets of $28.4.4 million (2021: $29.11 million), relating to losses arising in overseas entities, which depend on the availability of future taxable prots,ofits, have been recognised. Business projections indicate it is probable that sufcient futurehat sufficient future taxable income will be available against which to offset these recognised deferred tax assets within ve yeathin five years. $27.77 million (2021: $27.77 million) of the tax losses to which these assets relate will expire within ten years; a further $0.77 million (2021: $1.4.4 million) will expire after ten years or will be available indeniteldefinitely. The Group has not provided for deferred tax assets totalling $56.66 million (2021: $52.9.9 million) in relation to losses in overseas companies of $279.00 million (2021: $266.3: $266.3 million). In accordance with IAS 12, all deferred tax assets and liabilities are classiesified as non-current. The amount of deferred tax asset expected to be recovered after more than 12 months is $53.5onths is $53.5 million (2021: $67.2.2 million). Factors affecting tax charges in future years An increase to the UK corporate tax rate to 25% from 1 April 2023 was substantively enacted on 24 May 2021. This will have a consequential effect on the company’s future tax charge, and deferred tax assets in relation to the UK have increased by $0.2 million. The impact of these changes in future periods will be dependent on the level of taxable prots in thble profits in those periods. 27 Employee retirement benet obligationsee retirement benefit obligations The Company’s subsidiary Hiscox plc operates a dened benetes a defined benefit pension scheme based on nal pension scheme based on final pensionable salary. The scheme closed to future accruals with effect from 31ct from 31 Decemberber 2006 and active members were offered membership of aship of a dendefined contribution scheme from 1me from 1 Januaryy 2007. The funds of the denee defined bened benefit scheme are controlled by the trustee and are held separately from those of the Group. 61% of any scheme surplus or decir deficit is recharged to Syndicate 33. The full pension obligation of the Hiscox dened box defined beneenefit pension scheme is recorded and the recovery from the third-party Names for their share of the Syndicate 33 recharge is shown as as shown as a separate asset. The gross amount recognised in the Group balance sheet in respect of the denet of the defined benet schefit scheme is determined as follows: 2022 $m 2021 $m Present value of scheme obligations 213.9 40 4.1 Fair value of scheme assets (234.8) (369.0) Net amount recognised as aNet amount recognised as a dened benet (surplus)/defined benefit (surplus)/obligation (20.9) 35.1 As the fair value of the scheme assets exceeds the present value of scheme obligations, the scheme reports a surplus (2021: reports a decits a deficit). The dened benet obligaThe 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ed on a triennial basis, most recently at 311 Decemberr 2020, and updated at each intervening balance sheet date by the actuaries. The present value of the denee defined bened benefit obligation is determined by discounting the estimated future cash ows usish flows using interest rates of AA rated corporate bonds that have terms to maturity that approximate to the terms of the related pension liability. | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Notes to the consolidated nancial statements 224 Hiscox Ltd Report and Accounts 2022 27 Employee retirement benet obligations continuedee retirement benefit obligations continued The scheme assets are invested as follows: At 31 December 2022 $m 2021 $m Investment assets Pooled investment vehicles 81.4 145.3 Equities 26.1 36.3 Bonds 122.2 182.2 Derivatives – 0.2 Assets held by insurance company 2.5 – Cash 2.6 5.0 234.8 369.0 The amounts recognised in total comprehensive income are as follows: Note 2022 $m 2021 $m Past service cost – – Interest cost on dened benet obligat defined benefit obligation 6.4 5.6 Interest income on plan assets (6.0) (4.6) Net interest cost 0.4 1.0 Administrative expenses and taxes – – Total expense recognised in operational expenses in the income statement 9 0.4 1.0 Remeasurements Effect of changes in actuarial assumptions (146.6) (6.5) Return on plan assets (excluding interest income) 104.7 (31.4) Remeasurement of third-party Names’ share of dens’ share of defined benet oblefit obligation 7.0 6.3 Total remeasurement included in other comprehensive income (34.9) (31.6) Total dened benet credit recogniseotal defined benefit credit recognised in comprehensive income (34.5) (30.6) The movement in the (surplus)/liability recognised in the Group’s balance sheet is as follows: 2022 $m 2021 $m Group denep defined bened benefit liability at beginning of year 35.1 73.5 Third-party Names’ share of liability (12.3) (18.8) Net deNet defined benet linefit liability at beginning of year 22.8 54.7 Dened benet costDefined benefit cost included in net income 0.4 1.0 Contribution by employer (13.5) – Credit from third-party Names (0.1) (0.2) Foreign exchange movements 0.1 (1.1) Total remeasurement included in other comprehensive income (34.9) (31.6) Net deNet defined benet (surnefit (surplus)/liability at end of year (25.2) 22.8 Third-party Names’ share of liability 4.3 12.3 Group denep defined bened benefit (surplus)/liability at end of year (20.9) 35.1 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Notes to the consolidated nancial statements 225Hiscox Ltd Report and Accounts 2022 27 Employee retirement benet obligations continuedee retirement benefit obligations continued A reconciliation of the fair value of scheme assets is as follows: 2022 $m 2021 $m Opening fair value of scheme assets 369.0 344.4 Interest income 6.0 4.6 Cash owsCash flows Contribution by the employer 13.5 – Benet paBenefit payments (12.1) (8.8) Assets held by insurance company 2.6 – Remeasurements Return on plan assets (excluding interest income) (104.7) 31.4 Foreign exchange movements (39.5) (2.6) Closing fair value of scheme assets 234.8 369.0 A reconciliation of the present value of obligations of the scheme is as follows: 2022 $m 2021 $m Opening present value of scheme obligations 404.1 417. 9 Past service cost – – Interest expense 6.4 5.6 Cash owsCash flows Benet paBenefit payments (12.1) (8.8) Assets held by insurance company 2.6 – Remeasurements Changes in actuarial assumptions (146.6) (6.5) Foreign exchange movements (40.5) (4.1) Closing present value of scheme obligations 213.9 4 04.1 Assumptions regarding future mortality experience are set based on the S3PA (2021: S3PA) light tables. Reductions in future mortality rates are allowed for by using the CMI 2019 (2021: 2019) projections (core model) with 1.25% p.a. long-term trend for improvements. The average life expectancy in years of a pensioner retiring at age 60 on the balance sheet date is as follows: 2022 2021 Male 28.9 28.9 Female 30.8 30.7 The average life expectancy in years of a pensioner retiring at 60, 15 years after the balance sheet date, is as follows: 2022 2021 Male 29.3 29.3 Female 30.9 30.8 The weighted average duration of the denee defined bened benefit obligation at 31 December 2022 was 15.0 years (2021: 19.9 years). | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Notes to the consolidated nancial statements 226 Hiscox Ltd Report and Accounts 2022 27 Employee retirement benet obligations continuedee retirement benefit obligations continued Other principal actuarial assumptions are as follows: 2022 % 2021 % Discount rate 4.95 1.80 InatioInflation assumption (RPI) 3.09 3.30 InatioInflation assumption (CPI) 2.54 2.70 Pension increases 2.89 3.10 The scheme operates under UK Trust law and the Trust is ast is a separate legal entity from the Group. The scheme is governed by a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n a separate actuarial valuation for funding purposes for which the assumptions may differ from the assumptions above. Funding requirements are formally set out in the statement of funding principles, schedule of contributions and recovery plan agreed between the trustees and the Group. A triennial valuation was carried out as at 31 December 2020 and resulted in a decit poeficit 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 dece the deficit and to eliminate the decit by 2027eficit by 2027. No contributions were paid in 2021, following the advance payment made in December 2020 of £20.0 million ($26.7 million) in respect of contributions due in 2021. Under the recovery plan, and taking into account the material improvement in the funding position since the valuation date, there are six payments of £10.0 million ($13.5 million), which commenced in January 2022 and paid annually thereafter. The funding plan will be reviewed again following the next triennial funding valuation which will have an effective date of 31 December 2023. While management believes that the actuarial assumptions are appropriate, any signicant cficant changes to those could affect the balance sheet and income statement. For example, an additional one year of life expectancy for all scheme members would increase the scheme obligations by £5.11 million ($6.11 million) at 311 Decemberr 2022 (2021:: £12.22 million ($16.56.5 million)), and would increase/reduce the recorded net decit/ecorded net deficit/surplus on the balance sheet by the same amounts. The most sensitive and judgemental nanal financial assumptions are the discount rate and ination. Tate and inflation. These are considered further below. CPI revaluation in deferment is used for contracted-out members. Contracted-in members are linked to RPI as well as for all pension in payment increases. The Group has estimated the sensitivity of the present value of unfunded obligations to isolated changes in these assumptions at 311 Decemberr 2022 as follows: Present value of unfunded obligations before change in assumption $m Present value of unfunded obligations after change $m (Increase) /decrease in obligation recognised on balance sheet $m Effect of a change in discount rate Use of discount rate of 5.95% 213.9 185.6 28.3 Use of discount rate of 3.95% 213.9 249.6 (35.7) Effect of a change in inationflation Use of RPI inatiUse of RPI inflation assumption of 3.34% 213.9 216.6 (2.7) Use of RPI inatiUse of RPI inflation assumption of 2.84% 213.9 211.2 2.7 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Notes to the consolidated nancial statements 227Hiscox Ltd Report and Accounts 2022 28 Earnings per share Basic earnings per share is calculated by dividing the prot attre profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year, excluding ordinary shares held by the Group and held in treasury as own shares. Basic 2022 2021 Prot for the yeaProfit for the year attributable to the owners of the Company ($m) 41.7 189.5 Weighted average number of ordinary shares (thousands) 344,130 342,551 Basic earnings per share (cents per share) 12.1¢ 55.3¢ Basic earnings per share (pence per share) 9.8p 40.2p Diluted Diluted earnings per share is calculated by adjusting for the assumed conversion of all dilutive potential ordinary shares. The Company has one category of dilutive potential ordinary shares: share options and awards. For the share options, ans, 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. 2022 2021 Prot for the yeaProfit for the year attributable to the owners of the Company ($m) 41.7 189.5 Weighted average number of ordinary shares in issue (thousands) 344,130 342,551 Adjustments for share options (thousands) 4,490 3,740 Weighted average number of ordinary shares for diluted earnings per share (thousands) 348,620 346,291 Diluted earnings per share (cents per share) 12.0¢ 5 4.7¢ Diluted earnings per share (pence per share) 9.6p 39.8p Diluted earnings per share has been calculated after taking account of 3,680,735 (2021: 3,611,707) Performance Share Plan awards, 352,505 (2021: 128,080) options under Save As You Earn schemes and 457,100 (2021: nil) employee share awards. 29 Dividends paid to owners of the Company 2022 $m 2021 $m Final dividend for the year ended: 31 December 2021 of 23.0¢ (net) per share 79.2 – Interim dividend for the year ended: 31 December 2022 of 12.0¢ (net) per share 41.3 – 31 December 2021 of 11.5¢ (net) per share – 39.4 120.5 39.4 The interim and nal did final dividend for 2021 was paid either in cash or issued as a Scrip Dividend at the option of the shareholder. The interim dividend for the year ended 31 December 2021 was paid in cash of $39.2 million and 20,231 shares for a Scrip Dividend. The nand. The final dividend for the year ended 31 December 2021 of 23.0¢ was paid in cash of $78.9 million and 27,940 shares for the Scrip Dividend. The interim dividend for 2022 was paid either in cash or issued as a Scrip Dividend at the option of the shareholder. The amounts were $40.9 million in cash and 34,760 shares for a Scrip Dividend. The Board recommended a nded a final dividend of 24.0¢ per share to be paid, subject to shareholder approval, on 13 June 2023 to shareholders registered on 5 May 2023. The dividends will be paid in Sterling unless shareholders elect to be paid in US Dollars. The foreign exchange rate to convert the dividends declared in US Dollars into Sterling will be based on the average exchange rate in the ve burate in the five business days prior to the Scrip Dividend price being determined. On this occasion, the period will be between 23 May 2023 and 30 May 2023 inclusive. A Scrip Dividend alternative will be offered to the owners of the Company. When determining the level of dividend each year, the Board considers the ability of the Group to generate cash; the availability of that cash in the Group, while considering constraints such as regulatory capital requirements and the level required to invest in the business. This is a progressive policy and is expected to be maintained for the foreseeable future. | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Notes to the consolidated nancial statements 228 Hiscox Ltd Report and Accounts 2022 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 sufcient pro, 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1 Decemberber 2022, HDCM held $170.8.8 million of investments (2021:: $245.345.3 million), $17.1 million of cash (2021:: $1.8.8 million) and a $241.0 million LOC (2021:: $241.0.0 million) in favour of Lloyd’s of London under this arrangement. At 311 Decemberr 2022, Hiscox Bermuda held $528.11 million of investments (2021:: $695.55 million), $72.2.2 million of cash (2021:: $26.4.4 million) and a $25.0 million LOC (2021:: $25.0.0 million) in favour of Lloyd’s of London under this arrangement. (b) In 2020, HDCM entered into a $65.0d into a $65.0 million Funds at Lloyd’s agreement under which the lending bank provides assets on HDCM’s behalf under a security and trust deed charged to Lloyd’s of London as part of the Company’s Fund’s at Lloyd’s provision. At 311 Decemberer 2021 and 2022 the full $65.00 million was utilised. (c) Hiscox plc renewed during 2022 its LOC and revolving credit facility with Lloyds Banking Group, as agent for a syndicate of banks. The facility may be drawn in cash up to $600.0 million (2021:: £450.0 million) under a revolving credit facility or LOC up to $266.0 million (2021: $266.0 million). The terms also provide that the facility may be drawn in USD, GBP or EUR, or another currency with the agreement of the banks. At 311 Decemberber 2022, $266.0 million (2021:: $266.066.0 million) was utilised by way of LOC to support the Funds at Lloyd’s requirement and $nil cash drawings were outstanding (2021:: $nil). (d) Hiscox Insurance Company Limited has arranged a LOC of £nil (2021:: £50,000) with NatWest Bank plc to support its consortium activities with Lloyd’s; the arrangement is collateralised with cash of £nil (2021:: £50,000). (e) The Council of Lloyd’s has the discretion to call a contribution of up to 5% of capacity if required from the managed syndicates. (f) As Hiscox Bermuda is not an admitted insurer or reinsurer in the USA, the terms of certain US insurance and reinsurance contracts require Hiscox Bermuda to provide LOCs or other terms of collateral to clients. Hiscox Bermuda has in place a LOC reimbursement and pledge agreement with Citibank for the provision of a committed LOC facility in favour of USA ceding companies and other jurisdictions, and also committed LOC facility agreements with National Australia Bank and Commerzbank AG. The agreements combined allow Hiscox Bermuda to request the issuance of up to $470.0.0 million in committed LOCs (2021:: $470.0.0 million). LOCs issued under these facilities are collateralised by cash, US government and corporate securities of Hiscox Bermuda. LOCs under these facilities totalling $189.4 million were issued with an effective date of 311 Decemberer 2022 (2021:: $183.11 million) and these were collateralised by US government and corporate securities with a fair value of $214.24.2 million (2021:: $201.77 million). In addition, Hiscox Bermuda maintained assets in trust accounts to collateralise obligations under various reinsurance agreements. At 311 Decemberer 2022, total cash and marketable securities with a carrying value of approximately $23.2 million (2021:: $23.66 million) were held in external trusts. Cash and marketable securities with an approximate market value of $495.5 million (2021:: $554.33 million) were held in trust in respect of internal quota share arrangements. (g) Hiscox Société Anonyme has arranged bank guarantees with respect to its various ofce dfice deposits for a total of €339,196 (2021:: €266,624). These guarantees are held with ING Bank (Belgium) €23,460 (2021: €23,460), ABN Amro (Holland) €44,749 (2021: €44,749), HypoVereinsbank – UniCredit (Germany) €229,007 (2021: €156,435) and ING Bank (Luxembourg) €41,980 (2021: €41,980). As a consequence of the cross-border merger with Hiscox Europe Underwriting Limited effective 1 January 2019, Hiscox SA has the obligations under guarantees that were previously held by Hiscox Europe Underwriting Limited during 2018. (h) See note 25 for tax-related contingent liabilities. | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Notes to the consolidated nancial statements 229Hiscox Ltd Report and Accounts 2022 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 dentions to the defined benet scnefit scheme. The Group’s capital commitments contracted for at the balance sheet date but not yet incurred for property, plant, equipment and software development was $0.7 million (2021: $12.9 million). Income from subleasing Hiscox acts as a lessor and sublets excess capacity of its ofce spafice 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: 2022 $m 2021 $m No later than one year 2.0 2.0 Later than one year and no later than ve yeaater than five years 2.8 4.8 4.8 6.8 32 Principal subsidiary companies of Hiscox Ltd at 31 December 2022 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 Special Risks Agency (Americas) Inc. Underwriting agency USA (Delaware) Hiscox Insurance Services Inc. Insurance intermediary USA (Delaware) Hiscox Specialty Insurance Company Inc. General insurance USA (Illinois) Hiscox Insurance Company (Bermuda) Limited* General insurance and reinsurance Bermuda Hiscox Dedicated Corporate Member Limited Lloyd’s corporate Name Great Britain Hiscox Re Insurance Linked Strategies Limited Investment manager Bermuda Hiscox Agency Limited Lloyd’s service company Bermuda 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 Insurance Services (Guernsey) Limited Underwriting agency Guernsey Hiscox MGA Limited Insurance intermediary Great Britain Hiscox Insurance Holdings Limited Holding company Great Britain Hiscox Connect Limited Service company Great Britain Hiscox Assure SAS Insurance intermediary France Direct Asia Insurance (Holdings) Pte Ltd Holding company Singapore Direct Asia Insurance (Singapore) Pte Limited General insurance Singapore Direct Asia Management Services Pte Ltd Service company Singapore *Held directly by Hiscox Ltd. All principal subsidiaries are wholly owned. The proportion of voting rights of subsidiaries held is the same as the proportion of equity shares held. | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | Notes to the consolidated nancial statements 230 Hiscox Ltd Report and Accounts 2022 33 Related-party transactions Details of the remuneration of the Group’s key personnel, presented in Sterling, are shown in the annual report on remuneration 2022 on pages 112 to 121. A. 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 reedicate 33 reflect the 27.4% interest (2021: 27.4%) that the Group does not own, and are as follows. Transactions in the income statement forfor the year ended Balances outstanding (payable) at 31 December 2022 $m 31 December 2021 $m 31 December 2022 $m 31 December 2021 $m Hiscox Syndicates Limited 6.5 5.8 5.9 2.3 Hiscox Group insurance carriers 6.7 8.7 (90.6) (74.8) Hiscox Group insurance intermediaries 5.1 4.2 (4.6) (9.2) Other Hiscox Group companies 44.5 35.4 (1.6) 11.7 62.8 54.1 (90.9) (70.0) (b) Transactions with associates Certain companies within the Group conduct insurance and other business with associates. These transactions arise in the normal course of obtaining insurance business through brokerages, and are based on arm’s length arrangements. 2022 $m 2021 $m Gross premium income achieved through associates 14.0 17.5 Commission expense charged by associates 3.5 4.3 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re were a number of reinsurance arrangements entered into in the normal course of trade between various Group companies. The related results of these transactions have been eliminated on consolidation. 34 Post balance sheet event There are no material events that have occurred after the reporting date. | 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 nancial publications, A Net asset value (NAV) per share and net tangible asset additional performance measures (APMs) in addition to value per share the gures 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 nancial 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 nancial 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 gures 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 protability nancial 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 nancial 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 protability of business segments, and underpins the performance-related pay and pre-2018 share-based payment structures. The ROE is shown in note 6, along with an explanation of the calculation. 231Hiscox Ltd Report and Accounts 2022 | Chapter 1 2 | Chapter 2 20 | Chapter 3 72 | Chapter 4 106 | Chapter 5 148 | Chapter 6 157 | | --- | --- | --- | --- | --- | --- | | Performance | A closer look | Governance | Remuneration | Shareholder | Financial | | and purpose | | | | information | summary | ## Five-year summary 2022 2021 2020 2019 2018 $m $m $m $m $m Results Gross premiums written 4,424.9 4,269.2 4,0 33.1 4,030.7 3,778.3 Net premiums written 2,980.0 2,955.0 2,750.4 2,678.8 2,581.5 Net premiums earned 2,928.2 2,919.9 2,752.2 2,635.6 2,573.6 Prot/(loss) before tax 44.7 190.8 (268.5) 53.1 135.6 Prot/(loss) for the year after tax 41.7 189.5 (293.7) 48.9 117.9 Assets employed Goodwill and intangible assets 320.4 313.1 298.9 278.0 204.6 Financial assets carried at fair value 5,812.1 6,041.3 6,116.8 5,539.0 5,029.7 Cash and cash equivalents 1,350.9 1,300.7 1,57 7.2 1,115.9 1,288.8 Insurance liabilities and reinsurance assets (4,936.8) (4,960.4) (5,468.8) (4,707.6 ) (4,244.9) Other net assets (129.9) (155.4) (170.2) (35.6) (19.2) Net assets 2,416.7 2,539.3 2,353.9 2,189.7 2,259.0 Net asset value per share (¢) 701.2 739.8 689.0 768.2 798.6 Key statistics Basic earnings/(loss) per share (¢) 12.1 55.3 (91.6) 17. 2 41.6 Basic earnings/(loss) per share (p) 9.8 40.2 (71.5) 13.5 31.2 Diluted earnings/(loss) per share (¢) 12.0 54.7 (90.6) 16.9 40.8 Diluted earnings/(loss) per share (p) 9.6 39.8 (70.7) 13.3 30.6 Combined ratio (%) 90.6 93.2 114.5 106.8 94.4 Return on equity (%) 1.7 8.1 (11.8) 2.2 5.3 Dividends per share (¢) 36.0 34.5 – 13.8 41.9 Dividends per share (p) 30.3 25.3 – 11.1 32.8 † Share price – high (p) 1,106.5 1,004.0 1,431.0 1,777.0 1,711.0 † Share price – low (p) 8 27. 2 770.0 666.4 1,213.0 1,332.0 † Closing mid-market prices. The ve-year summary is unaudited. 232 Hiscox Ltd Report and Accounts 2022 | Designed by Em-Project Limited | Disclaimer | the insurance sector; the impact | | --- | --- | --- | | www.em-project.com | This document contains | of changes in capital, solvency | | | forward-looking statements | standards or accounting standards | | Printed by Pureprint | regarding plans, goals and | or relevant regulatory frameworks, | | www.pureprint.com | expectations relating to the | and tax and other legislation and | | | Group’s future nancial condition, | regulations in the jurisdictions | | Photography by | performance, results, strategy | in which Hiscox operates; and | | Simon Warren | or objectives, which by their very | the impact of legal actions and | | (cover image) | nature involve risk and uncertainty. | disputes. These and other important | | Simon Warren | Statements that are not historical | factors could result in changes to | | (reportage images p2, p7, p9, p12, p14, | facts are based on Hiscox’s beliefs | assumptions used for determining | | p21, p25, p42, p44, p54, p94, p106) | and expectations. These include | Hiscox results and other key | | Simon Warren | but are not limited to statements | performance indicators. | | (22 Bishopsgate image p22 to p23) | containing the words ‘may’, | | | Tony Hay | ‘will’, ‘should’, ‘continue’, ‘aims’, | Hiscox therefore expressly | | (22 Bishopsgate image p156 to p157) | ‘estimates’, ‘projects’, ‘believes’, | disclaims any obligation to update | | Suki Dhanda | ‘intends’, ‘expects’, ‘plans’, ‘seeks’ | any forward-looking statements | | (editorial images p17, p18, p39, p40, | and words of similar meaning. | contained in this document, | | p51, p52, p69, p70, p79, p80, p103, | These statements are based | except as required pursuant to | | p104, p145, p146, p153, p154), | on current plans, estimates and | the Bermuda Companies Act, | | Suki Dhanda | projections as at the time they are | the UK Listing Rules, the UK | | (Board images p72 to p74, | made and therefore undue reliance | Disclosure Guidance and | | GEC images p76 to p77) | should not be placed on them. | Transparency Rules or other | applicable laws and regulations. Printed in the UK by Pureprint using A number of factors could cause vegetable inks and their Pureprint Hiscox’s actual future nancial environmental printing technology. condition, performance or other ® | Pureprint is a CarbonNeutral | | | key performance indicators | | --- | --- | --- | --- | | company. Both the manufacturing | | | to differ materially from those | | mill and the printer are registered | | | discussed in any forward-looking | | to the Environmental Management | | | statement. These factors include | | System ISO14001 and are | | | but are not limited to future market | | | ® | ® | | | Forest Stewardship Council | (FSC | ) | conditions; the policies and actions | | chain-of-custody certied. | | | of regulatory authorities; the impact | of competition, economic growth, ination, and deation; the impact and other uncertainties of future acquisitions or combinations within Hiscox Ltd Chesney House 96 Pitts Bay Road Pembroke HM 08 Bermuda T +1 441 278 8300 E enquiries@hiscox.com www.hiscoxgroup.com 22185 03/23