Hiscox Ltd
Report and Accounts
2020
Ownership
Passionate,
commercial and
accountable.
Why ownership is so important to us
Taking ownership means making it
your business. It means being
passionate, curious and restless,
always looking for a better way of
doing things. We strive to be the kind
of people who take responsibility, are
ambitious, accountable, pragmatic,
tenacious and proudly high-achieving.
In a growing business like ours, taking
initiative is something we expect of
everyone, regardless of their role.
It shows itself in a willingness to speak
up, to confront problems, to avoid easy
excuses, and to embrace hard work.
These are qualities we have always
valued and nurtured. But in 2020,
Covid-19 meant that instinct to step
up and take ownership was more
vital than ever before.
It is in difcult times that our values are
tested, but it is also in difcult times
that they prove the greatest guide.
Throughout this report, you will nd
some examples of how we showed
ownership in 2020.
Ownership means
making it your business..
3 Showing ownership
in claims
4 Our key performance
indicators (KPIs)
6 Our response to Covid-19
8 Our purpose, values, culture
and vision
10 Our strategy and
how we operate
12 Key risks and business
priorities
14 Why invest in Hiscox?
17 Owning our understanding
of the cyber risk
18 Chairman’s statement
21 Chief Executive’s report
34 Capital
36 Risk management
40 Stakeholder engagement
42 Environmental, social and
governance (ESG)
51 Owning the Hiscox view
of risk
52 Board of Directors
54 Senior management
56 Chairman’s letter
to shareholders
57 Corporate governance
63 Compliance with the UK
Corporate Governance
Code 2018
68 Nominations and Governance
Committee report
71 Audit Committee report
107 Owning our contributions
to the local community
108 Directors’ report
111 Directors’ responsibilities
statement
111 Advisors
113 Owning our adoption of
big-ticket digital trading
114 Independent auditor’s report
122 Consolidated income
statement
122 Consolidated statement of
comprehensive income
123 Consolidated balance sheet
124 Consolidated statement of
changes in equity
125 Consolidated statement of
cash ows
126 Notes to the consolidated
nancial statements
187 Additional performance
measures (APMs)
188 Five-year summary
75 Taking ownership of
employee well-being
76 Letter from the Chair of the
Remuneration Committee
78 Remuneration summary
80 Annual report on
remuneration 2020
88 Implementation of
remuneration policy
for 2021
90 Other remuneration matters
94 Remuneration policy
1Hiscox Ltd Report and Accounts 2020
Hiscox is a diversied 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 ofces.
Our products and services reach every continent,
and we are one of the only insurers to offer
everything from small business and home insurance
to reinsurance and insurance-linked securities.
As a Bermuda–incorporated
company, Hiscox is not subject
to the UK Companies Act. As a
company listed on the London
Stock Exchange, we comply with
the requirements set out in the
UK Corporate Governance Code
2018 and the Listing Rules and
Disclosure & Transparency Rules
of the of the UK Listing Authority.
Our remuneration report is
consistent with UK regulations.
Any additional disclosures over
and above these requirements,
have been made for the benet of
shareholders, on a voluntary basis.
2 3
Chapter 2:
A closer look
Chapter 3:
Governance
5 6
1
Chapter 1:
A balanced business
Chapter 5:
Shareholder information
Chapter 6:
Financial summary
4
Chapter 4:
Remuneration
22 Hiscox Ltd Report and Accounts 2020
3Hiscox Ltd Report and Accounts 2020 3
Showing ownership in claims
Among the many life-changing impacts
of Covid-19, a postponed concert,
deferred sports event or cancelled ight
may seem trivial. But for businesses that
rely on events for revenue, or individuals
unable to return home or be reunited
with family members, these cancellations
can be devastating. Travel disruption was
one of the earliest impacts of Covid-19,
and required immediate ownership from
our claims teams. In the rst month of the
UK lockdown, we processed over 200
travel claims, including repatriation costs
for customers who were abroad when
the Foreign & Commonwealth Ofce
advised all British nationals to return
home immediately.
Travel bans and restrictions were
soon followed by event cancellations.
Our UK team worked with small- to
medium-sized businesses to provide
support and nd solutions. One
example was Motorcycle Live 2020, a
Birmingham-based show representing
the best of the British motorcycle
industry. With a global audience,
cancelling the November show was not
taken lightly, but as a result of our prompt
claims resolution they were able to make
an announcement in June, provide
signicant notice for attendees, and shift
their efforts to promoting the 2021 event.
Be passionate, curious,
restless and always
look for a better way.
Chapter 1:
A balanced business
1
4 Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
Our key performance indicators (KPIs)
The global pandemic impacted on protability in 2020, but
digitisation and exceptional commitment from our employees
helped to deliver good underlying performance and our usual
service levels.
Financial KPIs
20
20
20
19
20
18
20
17
20
16
4,033.1
4,030.7
3,778.3
3,286.0
3,257.9
Gross premiums written
$4,0 33.1m
Net premiums earned
$2,752.2m
(Loss)/prot before tax
$(268.5)m
Combined ratio
114.5%
Basic (loss)/earnings
per share
(91.6)¢
Ordinary dividend
0.0¢
Net asset value per share
689.0¢
Tangible net asset
value per share
601.5¢
Return on equity
(11.8)%
20
20
20
19
20
18
20
17
20
16
2,752.2
2,635.6
2,573.6
2,416.2
2,271.3
20
20
20
19
20
18
20
17
20
16
(268.5)
53.1
135.6
37.8
480.0
20
20
20
19
20
18
20
17
20
16
(91.6)
17.2
41.6
8.1
159.0
20
20
20
19
20
18
20
17
20
16
0.0
13.8
41.9
39.8
35.0
20
20
20
19
20
18
20
17
20
16
114.5
106.8
94.4
98.8
90.6
20
20
20
19
20
18
20
17
20
16
689.0
768.2
798.6
817.1
792.5
20
20
20
19
20
18
20
17
20
16
601.5
670.6
726.2
751.5
737.7
20
20
20
19
20
18
20
17
20
16
(11.8)
2.2
5.3
1.0
22.5
5Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 1 3
A balanced business
Our key performance
indicators (KPIs)
Chapter 3 51
Governance
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
Non-nancial KPIs
Employee engagement
68%
Our annual global employee engagement survey
looks at how connected we feel to Hiscox, our
managers, teams and roles. The results are shared
widely and heavily inuence our people strategy.
London Market broker
satisfaction 69%
Each year, we survey our London Market broker
partners to understand more about their
experience of working with Hiscox throughout
the year. Their feedback is a reection of our
products and service levels, so receiving
consistently good scores matters to us.
UK customer satisfaction
92%
In the UK, customers who speak to one of our
insurance experts in our customer experience
centre in York are asked to rate their experience
of Hiscox at the end of the call. Whether they have
phoned for advice, a quote, to purchase a new policy
or make changes to an existing one, their feedback
helps us to constantly improve our service.
UK claims net promoter
score 72
We measure and monitor the satisfaction of our
customers at critical points during the policyholder
journey, and especially in the event of making a
claim. Our UK claims net promoter score is based
on customers’ responses as to the likelihood
they would recommend Hiscox following a claims
experience with us, on a scale where ten is very
likely and zero is unlikely, and we are pleased with
the stability of these scores over time.
US customer reviews
using Feefo 4.8/5
In the USA, we ask customers to review their
experience of Hiscox post-purchase. We do this
using Feefo, which has a ve-star rating system,
and are pleased to maintain such high scores
year after year even as the business grows.
20
20
20
19
20
18
20
17
2016
69%
78%
76%
66%
76%
2020
20
19
20
18
20
17
92%
89%
90%
90%
20
20
20
19
20
18
20
17
20
16
4.8
4.8
4.7
4.7
4.8
20
20
20
19
20
18
20
17
20
16
68%
71%
74%
77%
78%
20
20
20
19
20
18
20
17
72
75
76
67
Data only available from 2017.
Data only available from 2017.
20
20
20
19
20
18
20
17
21.2%
26.1%
28.8%
31.1%
UK gender pay gap
21.2%
As a UK company with 250 or more employees,
we are required to disclose our gender pay gap for
UK employees, which we have done since 2017.
Improving diversity and inclusion at Hiscox is a high
priority, and we continue to focus on nding ways
to reduce our gender pay gap.
Data only available from 2017.
6 Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
Extended cover in some lines
such as home and motor,
provided premium refunds for
event insurance customers,
waived 30-day cancellation
periods for commercial
insurance policyholders, and
offered a range of nancial
concessions including
payment holidays.
Our response to Covid-19
Coronavirus affected us all in 2020 and as the situation evolves,
so has our response. Our efforts are focused on four key areas;
our customers, our employees, our operations, and our
contribution to the communities in which we live and work.
Set up dedicated Covid-19
claims telephone lines, as well
as an online claims portal to
process and pay business
insurance claims as quickly
as possible.
Our
customers
Reserved $475 million in
Covid-19-related claims
around the world across our
travel, events and business
insurance lines.
Provided new ways to quote,
negotiate, bind and endorse
within our London Market
business, with over 90% of
risks bound online using the
Lloyd’s Placing Platform
Limited (PPL) during the
third quarter of 2020.
Participated in an insurance
industry test case with seven
other insurers to provide
clarity and certainty on the
business interruption cover
available to customers as
quickly as possible.
Transitioned successfully
to home-working, with over
95% of our 3,000 employees
working remotely.
Delivered mental health
training to over 1,000
employees and provided
access to over 30 webinars
led by mental health experts
on topics such as sleep,
resilience, home-schooling
and living alone.
IT home-working tips,
additional training and
drop-in sessions quickly
upskilled employees on safe
and secure remote working
– from setting up new
devices to using new tools
for video conferencing and
staying connected.
“The mental health training
made you reect about your
own well-being, as well as
the well-being of your team,
and gave me tools that I can
have condence will work.”
Our
employees
Retained all current roles
during 2020; did not furlough
staff or access any UK, USA
or European government
support schemes.
“Hiscox extended my travel
cover free of charge while
I was stranded abroad and
trying to get back to the UK.
Your quick response and
high level of communication
helped ease an extremely
stressful situation.”
7522113
22
Took a ‘pay it forward’
approach to contract staff
and suppliers by continuing
to pay them during national
and local lockdowns and
ofce closures.
7Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 1 3
A balanced business
Our response to
Covid-19
Chapter 3 51
Governance
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
“We are grateful to Hiscox
USA for helping us nourish
our frail-aged neighbours
during this difcult time.”
Citymeals on Wheels
New York
Established new partnerships
with organisations that aim
to improve SME access to
funding and critical business
resources, including Business
in the Community in the UK
and The Women’s Business
Development Center in
the USA.
Gave US employees $100 to
spend at a local small business
of their choice, to support
struggling businesses at a
time of need.
Founding supporter of the
ABI’s Covid-19 Support
Fund, the largest UK
non-government fundraise
to date, with over £100million
in voluntary contributions
from the insurance and
long-term savings industry
pledged so far.
Our
communities
Set up a ‘donate your
commute’ initiative to
encourage employees to use
their commuting time to work
to practically support a cause
close to their heart.
Enabled 630 meals to be
delivered to isolated elderly
New Yorkers, 91,300 meals for
Londoners facing food poverty
and almost 10,000 meals for
hard-working NHS staff.
Donated over $9 million to a
range of good causes, helping
some of those most affected
by the global pandemic.
Set up small and focused
working groups to cover very
specic operational elements,
including return to ofce
working groups and future
ways of working teams.
Established four distinct
workstreams, led by Executive
Committee members, to
manage our response, focused
on operating effectively,
underwriting exposure and
customer service through
claims, nancial exibility and
resilience, and working with
regulators and governments.
“We began preparing our IT
systems in January 2020 for
the potential transition from
our usual c.600 remote
workers per week to over
3,000, and it paid off – with
little to no systems downtime.”
Our
operations
Redeployed 27 employees
to provide additional frontline
support to ensure we could
continue to effectively serve
our customers at a time of
increased demand.
107
48
Additional Board meetings
were held during the year,
covering specic topics
such as the approval of
May’s capital raise, the
Company’s response to
Covid-19 and the insurance
industry test case.
Led the Bermuda reinsurance
market in supporting the
Bermuda Education Network
by providing computers for
home-schooling for over 300
children, and in raising more
than $550,000 for Bermuda’s
King Edward VII hospital.
“Being in the business of risk
means managing claims surges.
Whether those surges are the result
of a ood, a hurricane, or as we saw
this year, a global pandemic, we have
established and repeatable structures
and processes for handling claims
during large loss events.”
Grace Hanson
Chief Claims Ofcer
8 Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
Our purpose, values, culture and vision
We have had a strong set of values for decades which, along
with our purpose, culture and vision, connect us to the business,
our customers and each other.
We periodically review our purpose,
values, culture and vision to ensure
they are still true to the business and t
for the future. Our values are incredibly
important to us; we are guided by them
and we work hard to make sure they are
lived, not paid lip service to. By doing
so, we become a business that our
customers can relate to, and we provide
employees with a work environment
in which they can ourish. In our 2020
annual global employee engagement
survey, which was completed by almost
2,500 employees, 90% said they believe
in our corporate values, 83% said
employees are treated fairly regardless
of disability, age or professional
background, and 77% said they
felt proud to work for Hiscox.
Our purpose
As experts in risk, we give people and
businesses the condence to realise
their ambitions.
We want to give our customers, whether
they are a small business, a risk manager
for a large corporate, a homeowner or a
collector, the condence to pursue their
ambitions. We exist to offer them peace
of mind, by providing advice, expertise,
a safety net or simply an arm around
them when they need it most.
Our values
9Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 1 3
A balanced business
Our purpose, values,
culture and vision
Chapter 3 51
Governance
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
Our culture
We work hard to nurture our culture,
and it is something we regularly
measure and monitor to ensure
we keep it alive. In 2020, we began
designing new ofce space with
our distinctive culture in mind and
embodying our values of ownership,
connected and human. Examples of
this from our Bermuda and London
ofces can be seen in the images to
the right. We are also establishing
exciting new ways of working
that balance both exibility and
collaboration and support our desire
to attract and retain the best talent.
Our vision
For Hiscox to be the leading specialist
insurer in material markets – not the
biggest, but the most respected.
We want to be known by customers
for being true to our word, as a great
place to work and grow for those who
are ambitious and talented, and to be
seen as an industry leader in attitude,
sales growth, prots and value creation.
Read more about how we
measure and monitor culture.
48
“I have worked at Hiscox for almost 20
years, and in all of the roles I have held
– from Hiscox UK to Group functions,
in claims, underwriting or operations –
I have felt a strong and consistent culture.
Our values are our common lexicon, no
matter which part of the business you
work in. They are lived and breathed,
they are talked about often, and they
inform decision-making at every level.”
Joanne Musselle
Group Chief Underwriting Ofcer
Artist impression of Hiscox’s new London ofce
at 22 Bishopsgate.
Hiscox’s Bermuda ofce.
10 Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
A truly international business
As the nature of risk evolves, we
want to be diversied in both the
range of insurance we write and its
geographical spread. Our business is
truly international, with over 3,000 staff
across 14 countries and 35 ofces and
a portfolio of products and services that
reach every continent. We are one of
the few insurers to cover every size of
business, from one-man-bands right
up to the largest multinationals; an
approach which means we can adapt
to market conditions and which gives
us opportunities for protable growth
throughout the insurance cycle.
A strategy of balance
Hiscox’s long-held strategy ensures
we are not overly reliant on any one of
our divisions for the Group’s overall
prots. We maintain a balance between
big-ticket business – the larger premium,
globally traded and catastrophe-exposed
lines written through Hiscox London
Market and Hiscox Re & ILS – and the
smaller premium, locally traded, relatively
less volatile business written through
Hiscox Retail. In our big-ticket businesses,
we shrink and expand according to the
pricing environment. In retail, where our
specialist knowledge differentiates us,
we target growth of 5-15% per annum
and invest in brand-building to continually
strengthen our market position.
Our strategy and how we operate
Our long-held strategy has delivered throughout the insurance
cycle. Central to this is a simple business model.
A specialist product approach
We seek to excel in our chosen markets,
such as small business, ood or kidnap
and ransom insurance. In some, such
as ne art, we have deep foundations
to build on; in others we are relative
newcomers. To be successful in any of
these fast-moving sectors, we invest
in the right people, infrastructure and
technology to give us the exibility
and nimbleness to respond quickly to
changes. The common thread is our
focus on niche products and services
that differentiate us.
Read more about our performance
by product and geography in our
Chief Executive’s report.
View a breakdown of our big-ticket
and retail business for 2020.
29 21
11Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 1 3
A balanced business
Our strategy and how
we operate
Chapter 3 51
Governance
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
A strategy built around our business model, customers, people and other
stakeholders such as shareholders, regulators and communities
Business model
– a diversied
portfolio, focused
on organic growth
Annual and
long-term plans
– disciplined
– commercial
– deliverable
Stakeholders’
expectations
– a respected
specialist insurer
People
– a great place
to work for the
hard-working,
ambitious
and talented
Customers
– true to our word
Business model – a diversied
portfolio, focused on organic growth
We aim to be industry leaders in
material markets. We use our
underwriting expertise in Bermuda
and London to write larger premium,
volatile or complex risks while
building distribution and operational
effectiveness in the UK, Europe,
USA and Asia for our specialist
retail products.
Customers – true to our word
We invest in creating a customer-focused
ethos and a powerful differentiated brand
that our target customers identify with.
Our people – a great place to work
for the hard-working, ambitious
and talented
The quality of our people is a crucial
factor in our continuing success.
Their expertise, courage and dedication
drive our reputation for quality and
professionalism. In return, we strive to
provide them with a work environment
in which they can ourish.
Stakeholders’ expectations – a
respected specialist insurer
We constantly adapt to the evolving
regulatory environment in each of our
regions. We are accountable to our
communities and responsible in how
we operate.
Read more about our
stakeholder engagement.
40
“I have admired Hiscox for 20 years
as both a reinsurance partner and a
competitor. For me, Hiscox is synonymous
with underwriting acumen and product
innovation, and its brand is iconic in our
industry. The selection process was
refreshingly clear and with a candour
that you don’t often nd, which really
appealed to me. I am joining at an exciting
moment – not only in the Company’s
growth, but also as conditions in the
reinsurance market improve and new
opportunities present themselves.”
Kathleen Reardon
Chief Executive Ofcer, Hiscox Re & ILS
12 Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
Key risks and business priorities
As an insurance business, understanding and managing risk is
part of our DNA. This is how we will balance risk and opportunity
in 2021.
Key risks
As an insurance group,
specic risks related to
our business include:
Strategic risk
The possibility of adverse outcomes
resulting from ineffective business
plans and strategies, decision-making,
resource allocation or adaptation to
changes in the business environment.
The Group’s continuing success
depends on how well we understand
our clients, markets and the various
internal and external factors affecting
our business, and having a strategy
in place to address risks and
opportunities arising out of this.
Not having the right strategy could
have a detrimental impact on
protability, capital position,
market share and reputation.
Underwriting risk
The risk that insurance premiums
prove insufcient to cover future
insurance claims and associated
expenses. Likely causes include failing
to price policies adequately for the risk
exposed, making poor risk selection
decisions, allowing insurance
exposures to accumulate to an
unacceptable level, or accepting
underwriting risks outside of agreed
underwriting parameters. This includes
people, process and system risks
directly related to underwriting, such
as human error in paying invalid claims
or misquoting premium prices.
Reserving risk
The Group makes nancial provisions
for unpaid claims, defence costs and
related expenses to cover liabilities
both from reported claims and from
‘incurred but not reported’ (IBNR) claims.
Reserving risk relates to the possibility
of unsuitable case reserves and/or
insufcient outstanding reserves being
in place to meet incurred losses and
associated expenses, which could affect
the Group’s future earnings and capital.
Credit risk
The risk of a reinsurance counterparty
being subject to a default or downgrade,
or that for any other reason they may
renege on a reinsurance contract
or alter the terms of an agreement.
The Group buys reinsurance as a
protection, but if our reinsurers do not
meet their obligations to us, this could
put a strain on our earnings and capital
and harm our nancial condition and
cash ows. 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 threat of unfavourable or unexpected
movements in the value of the Group’s
assets or the income expected from them.
It includes risks related to investments – for
example, losses within a given investment
strategy, exposure to inappropriate assets
or asset classes, or investments that
fall outside of authorised strategic asset
allocation or tactical asset allocation limits.
Liquidity risk
This relates to the risk of the Group being
unable to meet cash requirements from
available resources within the appropriate
or required timescales, such as being
unable to pay liabilities to customers or
other creditors when they fall due. It could
result in high costs in selling assets or
raising money quickly in order to meet
our obligations, with the potential to have
a material adverse effect on the Group’s
nancial condition and cash ows.
Operational risk
The risk of direct or indirect loss
resulting from internal processes,
people or systems, or from external
events. This includes cyber security risk,
which is the threat posed by the higher
maturity of attack tools and methods
and the increased motivation of cyber
attackers, in conjunction with a failure
to implement or maintain the systems
and processes necessary to protect the
condentiality, integrity or availability of
information and data. Operational risk
also covers the potential for nancial
losses, information and cyber security
risks which have implications from
a legal, regulatory, reputational or
customer perspective, for example,
major IT, systems or service failures.
Regulatory, legal and tax governance
This relates to the business failing to act in
accordance with its applicable regulatory
requirements in all its applicable
jurisdictions, or a deterioration in the quality
of our relationship with one or more
of our regulators. Legal risk is the risk
of acting contrary to the relevant legal
requirements in any of the jurisdictions in
which we operate, while tax governance
risk covers the consequences of any failure
to act in accordance with relevant taxation
laws or adapt to changes in taxation.
Read more on how we manage
key risks in note 3.
136
13Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 1 3
A balanced business
Key risks and business
priorities
Chapter 3 51
Governance
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
“The past year has only accelerated
the pace at which the insurance market
is going digital, and Hiscox is uniquely
placed to seize the moment. Our
multi-year technology investments
have given us the tools to deliver superb
digital experiences for customers,
brokers, partners, and employees
alike. The opportunity is huge.”
Ben Walter
Chief Executive Ofcer, Hiscox Retail
Business priorities for 2021
Underwriting portfolio
optimisation
Digitising and
streamlining our
operating model
Nurturing talent in
new ways
We are becoming a more digital
business, having invested $500million
in technology over the last ve years.
In 2021, we will look to realise these
efciencies in order to seize the
signicant digital opportunity ahead,
and begin our claims transformation
journey. We will also focus on rigour in
execution; rebalancing our global versus
local capabilities to ensure we have
the right knowledge in the right place,
embedding consistent and repeatable
processes, and pooling resources to
benet from our growing scale. This
will result in some simplication within
the business to improve the speed of
decision-making and delivery.
In 2021, we will build on last year’s
progress in optimising our underwriting
portfolios and improving loss ratio
performance through a continued
focus on active portfolio management.
This means addressing poor-performing
lines, investing in top quartile business
and taking decisive action when needed.
We will examine where we can simplify
underwriting processes, products and
services; boost existing product and
pricing controls; and formalise the
ow of data and insight between
underwriting, claims and actuarial.
After a year of lockdowns and
home-working, 2021 is about unleashing
potential and investing in talent. This will
include embedding new working styles
and supporting policies that balance
the ability to work remotely with the
culture, collaboration and energy of
our ofce environments. It will also mean
establishing robust plans in every part
of the business for developing talent,
more talent sharing across the Group,
and focusing on our diversity as well
as our succession pipeline at all levels.
Read more on performance against
our 2020 business priorities.
83
14 Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
4%
compound GWP growth over the last
ten years in big-ticket business.
8%
compound GWP growth over the last
ten years in Hiscox Retail.
Big-ticket business
Hiscox Re & ILS
Hiscox London Market
Retail business
Hiscox UK
Hiscox Europe
Hiscox Special Risks
Hiscox USA
Hiscox Asia
* Hiscox Retail includes $1.5m GWP
of fully reinsured run-off portfolios.
$1.6bn
returned to shareholders since 2010.
A focus on creating sustainable and
compounding shareholder returns
We aim to achieve this by balancing
consistent capital returns to our
shareholders with reinvesting excess
capital into our business to ensure
sustainable growth in the medium to
long term. The challenging operating
environment over the past 12 months
has resulted in the Board’s decision to
suspend dividend payments. However,
the Board believes that as our business
delivers the 2021 business plan and
as prots ow through, it may be in a
position to consider paying a dividend
with the 2021 interim results.
19 0%
total shareholder return over the last ten
years, well above the FTSE All-Share
of 72%.
Total Group controlled income
($m)
Why invest in Hiscox?
A balanced business which provides opportunities throughout
the insurance cycle.
A balanced business achieving
sustainable growth
By running a well-balanced business,
underpinned by a clear set of values
and characterised by a disciplined
approach to underwriting, our aim is
to consistently grow the business in a
way that is organic, sustainable and
protable. Covid-19 presented some
unique challenges in 2020, but as the
chart opposite shows, over the past 28
years the Group’s controlled income has
broadly risen in a steady manner, despite
the industry’s innate volatility. That
growth has been fuelled by progress
across all our divisions and regions.
$32bn
gross premiums written over the
last ten years.
15Hiscox Ltd Report and Accounts 2020
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Chapter 1 3
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Why invest in Hiscox?
Chapter 3 51
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Financial summary
2
017
2
018
2
019
2020
2
015
2
016
2
014
2
013
2
012
2
011
2
010
2009
2008
2007
2006
2005
2004
2003
2002
20
01
2000
1999
1998
1997
1996
1995
1994
1993
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
Hiscox Retail* Hiscox London Market, Hiscox Re & ILS
630
666
579
569
677
799
828
892
1,131
1,506
1,928
2,033
1,901
2,587
2,951
2,570
2,690
2,585
2,669
2,839
3,008
3,268
3,310
3,625
3,652
4,224
4,530
4,532
Total Group controlled income
($m)
“We are an A-rated, well capitalised
business, with the nancial exibility,
operational strength and talent to drive
sustainable long-term growth. In our
Retail businesses, our established
digital platforms are beneting from the
global shift to digital. In our big-ticket
lines, our expertise and underwriting
discipline positions us well as the rating
environment improves.”
Aki Hussain
Group Chief Financial Ofcer
16 Hiscox Ltd Report and Accounts 2020
17Hiscox Ltd Report and Accounts 2020
Owning our understanding of the
cyber risk
The cyber risk landscape is constantly
changing, as new risks appear and
known risks evolve, but it is vital that
we stay ahead in this area. That means
taking ownership of developing technical
abilities and responding to industry
trends. The Hiscox Technical Cyber
Training Programme, which launched this
year with industry-leading cyber security
qualications CompTIA Security+ and
CompTIA Pentest+, ensures a consistent
and repeatable approach to underwriter
cyber training. This training, along with
our cyber efforts around the world, are
coordinated by our CyberClear Centre,
which provides cyber-related education
and advisory services to our cyber teams
in every business unit, enabling them to
deliver real-time information and external
insights to our brokers and customers.
The Hiscox Cyber Insight Dashboard is
an example of this melding of information
and insight, as it combines third-party
cyber security ratings with our own
claims data analysis to create a prole of
a business’s cyber exposure. As well as
allowing our underwriters to get a valuable
overview of what could be a complicated
risk and make informed pricing decisions,
it also gives brokers and customers
a unique insight into their cyber risk.
We are a growing
company and
you need to grow
with us.
Chapter 2:
A closer look
2
Chapter 3 51
Governance
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Remuneration
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Shareholder information
Chapter 6 113
Financial summary
Chapter 1 3
A balanced business
Chapter 2 17
A closer look
18 Hiscox Ltd Report and Accounts 2020
Chairman’s statement
2020 got off to a good start and then
came the global pandemic. Over
my 48 years in the business, I have
experienced most of the challenges
that Mother Nature and mankind have
thrown at the insurance industry,
but Covid-19 and its repercussions
have been one of the most testing.
As a result, we expect to pay
$475million in Covid-related claims
net of reinsurance, the majority for
event cancellation and the remaining
for business interruption and other
claims. These are large sums and
disappointingly means that we will
make a pre-tax loss for the year of
$268million. Without Covid-19
we would have produced a prot
of $207 million.
The pandemic has also affected the way we work and how
we interact with each other. In the eld of business processing,
our response to the pandemic has signicantly accelerated
our digital progress. For example, in 2020 our London Market
business bound over 90% of its business digitally, which
is a phenomenal change in the way business is written in
the market. Our investment in IT systems and the superb
dedication of all our employees meant that the transition to
working from home was almost seamless. We all long for a
return to more normal working but it is unlikely we will return
to exactly the way it was.
Gross written premiums are stable at $4,033.1million
(2019:$4,030.7million) and the combined ratio increased
to 114.5% (2019:106.8%). Excluding Covid-19 the combined
ratio decreased to 97.0% (2019:106.8%).
Our long-term strategy has been to build a balanced book of
business. We have grown our small-ticket Retail business in
the UK, Europe, USA and Asia to balance the big-ticket London
Market and Re & ILS businesses written through Lloyd’s
and in Bermuda. We have seen strong protable growth in
Hiscox London Market as rates continue to surge ahead in
the wholesale markets. Disciplined underwriting over the last
three years as we weeded out underperforming business
has meant that we are very well placed to take advantage
of the improving conditions. In Retail, Hiscox Europe and
the US direct and partnerships business, in particular, had
good results, notwithstanding the pandemic.
In all segments we have beneted from our multi-year
investment in new technology and digital tools. These
include new underwriting platforms, quote and buy systems,
robotics and APIs to connect us with business partners.
Global lockdowns have accelerated our customers’ adoption
of online systems and this has driven a good underlying
performance in Hiscox Retail which delivered growth of
3%. Customer numbers in our Retail business have grown
by 10% to 1.3million over the period.
For Hiscox UK, Covid-19 brought about a dispute with a
number of our customers over the wording in some commercial
property policies. Our commitment to putting things right
for our customers has long been the cornerstone of the
Hiscox brand. But for the rst time, our reputation for paying
claims quickly and without fuss came under intense scrutiny.
We regret any dispute with a customer, but particularly where
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Chairman’s statement
19Hiscox Ltd Report and Accounts 2020
Over the years, we have employed some of the best minds
in the industry, but like any business we must work hard to
continue to attract and retain good people. I am immensely
proud that in 2020 we welcomed over 300 new talented and
ambitious individuals across the Group. Starting a new job
during lockdown cannot be easy, and we have found new
ways to welcome them.
One of our recent senior joiners has been Kathleen Reardon,
our new Hiscox Re & ILS CEO. Kathleen has spent the
last six years as CEO of Hamilton Re, where she built a
reinsurance business from the ground up. She replaces
Mike Krefta, who made an immense contribution to Hiscox
during his 17-year tenure, most recently developing our ESG
framework. We look forward to beneting from Kathleen’s
depth of knowledge and presence in global reinsurance,
and her experience of building businesses through the
reinsurance cycle.
Diversity and inclusion
We are committed to creating a diverse and inclusive
workplace and an environment where all employees are
supported and can thrive. Under the leadership of
Kate Markham, Hiscox London Market CEO and Group
Executive Sponsor for D&I, we are improving the gender
balance at all levels through a combination of key
performance indicators, training, networking, mentorship
and partnerships such as the Insurance Supper Club
and the Independent Women in Insurance Network.
This progress is reected in our improved gender pay
gap for the UK, and more diverse succession pipelines
with at least one female successor for every leadership
team role.
This work will continue in 2021, along with a sharpened
focus on ethnicity and race as we look to make further
progress against the action plans put in place this year
in support of the #WeStandTogether movement.
Culture and values
We have been on the defensive in 2020 as our values have
been tested and the trust we have painstakingly built over
many years between us and our customers has been
challenged to our dismay. It has been a particularly tough
year, but during times like these we have to dig deep,
go back to our core values, recognise where we need to
improve and learn from the past.
the policy wording was not as clear as it should have been.
That is why we willingly agreed to be one of the group of
insurers that assisted the FCA with the test case and we
welcome the nality and certainty the Supreme Court
Judgment has brought. We are now paying covered
claims as quickly as possible.
In the face of unprecedented economic uncertainty,
prudent capital management is critical to ensure we are
able to continue to serve our customers, pay valid claims
and grow where opportunity permits. We have taken a range
of proactive actions, both before the onset of the pandemic
and since, to further strengthen Hiscox’s robust balance
sheet and position us for growth.
In our rst quarter 2020 trading statement, we announced
an equity placing for up to 19.99% of our issued share
capital to support growth opportunities and rate
improvements in the US wholesale and reinsurance
markets. This placement was successful and we raised
£375million. I would like to thank our shareholders for their
support during a challenging time.
In April, we announced the decision not to pay the 2019
nal dividend and that the Group would not propose an
interim dividend payment. The Board has also decided not
to declare a nal dividend for 2020. The decision was not
taken lightly by the Board, who are acutely aware of the
importance of dividends as a source of income for our
shareholders, including private shareholders many of whom
own shares through pension funds. The Executive Directors
will not be taking any cash bonuses until the dividend is
reinstated. The Board believes that as our business delivers
the 2021 business plan and as prots ow through, it intends,
subject to Board approval, to resume paying dividends with
the 2021 interim results.
The Group remains strongly capitalised against both our
regulatory and rating agency requirements, and we are able
to withstand a combination of severe downside scenarios
including an active hurricane season.
People
Without the resilience of our 3,000 employees across the
globe, we would not have overcome this challenging year.
I would like to take this opportunity to thank everyone for
their dedication, exibility and, most of all, their hard work.
“Disciplined underwriting
over the last three
years as we weeded
out underperforming
business has meant that
we are very well placed
to take advantage of the
improving conditions.”
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Chairman’s statement
20 Hiscox Ltd Report and Accounts 2020
Last year we shared the outputs of our most recent culture
review; our refreshed values of courage, ownership, integrity,
connectedness and being human. This year I was pleased to
see them become embedded in our business and being lived.
As it turned out, the timing of this exercise was fortuitous,
and during a year of remote working at our kitchen tables
and home ofces, it is our values that have served as a golden
thread throughout the Company.
Outlook
The challenges of a global pandemic have not withered the
green shoots of a hardening market. Rates are rising across
all three of our business areas, and the market is turning.
Together with our multi-year investments in technology and
digital tools, we have the infrastructure, talent and nancial
repower to realise the signicant opportunities ahead.
We can look forward with condence as some normality returns
globally in 2021 and we continue to focus on providing excellent
service during these difcult times in all our markets.
Robert Childs
3 March 2021
“In all segments we
have beneted from our
multi-year investment
in new technology and
digital tools, including
new underwriting
platforms, quote and
buy systems, robotics
and APIs.”
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21Hiscox Ltd Report and Accounts 2020
Chief Executive’s report
2020 is a year few of us will forget
as we all adapted to the impact
of Covid-19 on our societies,
our businesses and our lives.
Adaptability and resilience were
core to weathering the storm and
few of us are untouched by the
human tragedies it has caused.
Like many others, Hiscox adjusted well to the challenges
of working from home, operating effectively to serve our
customers and brokers, and contributing to our local
communities. We established new partnerships to increase
small business access to essential services and funding in
both the UK and the USA, and supported a number of
charitable endeavours – donating over $9million to good
causes around the world. These included foodbanks, mental
health and well-being charities, hospitals, and the Association
of British Insurers’ Covid-19 Support Fund. Our ability to do
all of this was due to the hard work and dedication of our
staff, who were all the while dealing with their own personal
Covid-19 challenges. I would like to thank them all for their
tremendous efforts this year.
In 2020, Hiscox reported a pre-tax loss of $268.5million
(2019:prot of $53.1million). The Group combined ratio
was 114.5% (2019:106.8%). Excluding the impact of
Covid-19 claims, Hiscox’s combined ratio was 97.0%,
reecting the underlying improvement in performance in
many parts of the Group and the benet of circa $80million
in expense savings.
Against a backdrop of sharp economic contraction across
the markets in which we operate, the Group has maintained
its revenues at $4.0billion. Hiscox London Market has had
a stellar year, growing its revenues by 5.7% to $1.0billion,
delivering a 93.7% combined ratio and prots of $97.2million.
Hiscox Retail grew by 3.2% to $2.3billion and, excluding
Covid-19 claims, delivered a combined ratio, within our
guidance, of 97.7% and prots of $162million. Including
Covid-19, Hiscox Retail’s combined ratio is 120.0% and
it made a pre-tax loss of $237.6million. Our direct and
partnerships business across the world grew by 15% with
total revenues approaching $600million as we beneted from
the ongoing structural shift to digital. Hiscox UK maintained
its revenues at $756.1million. The good performance in these
segments offset the reduction in revenue in Hiscox Re & ILS
as it showed discipline at last January’s renewals, before
beneting from price rises in the rest of the year.
Hiscox’s 2020 performance, while understandable, is not
satisfactory. We have worked hard to address underperforming
segments in our business through our Decile 10 action plans,
and equally to grow our top-performing lines through our
quartile 1 focus. The performance of Hiscox London Market
shows the positive impact of these plans.
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Chief Executive’s report
22 Hiscox Ltd Report and Accounts 2020
As we look into 2021, we see two trends which will benet
Hiscox. The rst is the dramatic digital acceleration which will
benet our direct and partnerships business, as well as our
London Market business where we bound over 90% of our
risks through Lloyd’s PPL platform in 2020 and already
trade $75 million through digital means with brokers and
coverholders not located in London. The second is the rating
environment that will drive strong return to prot by our London
Market and Re & ILS businesses. This, in turn, will allow us to
drive growth in our Retail division, making use of the inherent
strength of our balanced business. It is this strategy that will
position Hiscox to benet from the generational shift to digital
trading. This will allow us to serve more customers more
effectively and the whole of Hiscox to prosper.
Global pandemic
As the pandemic spread across the countries in which we
operate, we rapidly shifted to different ways of working.
Our Chief Information Ofcer described it as instantly going
from 35 ofces to over 3,000. It was a smooth transition made
simpler by past IT investments and the willingness of all staff
to adapt, juggling roles as parents, carers and volunteers
alongside their work. We committed to our staff that no one
would leave the business in 2020 due to the economic impact
of the pandemic. To adapt to changing demands we created a
talent exchange which saw a number of colleagues moving to
new roles, temporarily or permanently, particularly to support
our frontline.
Paying claims in a fair and fast manner is part of our DNA.
We have reserved $475million for Covid-19 claims across all
lines. Claims teams across the Group mobilised and delivered
for our clients. The Group’s largest share of Covid-19 losses
is for event cancellation and abandonment, where Hiscox
proactively sold communicable disease cover, and many of
these claims have already been paid.
The Group’s second largest share of Covid-19 claims is from
UK business interruption cover in commercial property
policies. Unsatisfactorily for both our policyholders and
ourselves, there was disagreement over whether the Hiscox
policy wordings responded to the steps taken by the UK
government to manage Covid-19. Our claims paying philosophy
is deep-rooted: to pay claims quickly, fairly and in line with
the intention of the policy. The underwriting intention of these
property policies is to respond to local events affecting a
rm’s premises and not to nationwide steps taken to manage
the pandemic. When a claims decision is challenged it is the
wording which determines the coverage in law, and there was
room to question whether the Hiscox wording reected this
underwriting intent. We, of course, regret the impact of this
disagreement on affected policyholders, and the adverse
publicity we received as a result of it has been difcult for all
of our stakeholders.
Similar disagreements occurred across the industry, and
the Financial Conduct Authority recognised this by bringing
an expedited industry test case before the UK courts on
behalf of policyholders. Their ambition was to bring clarity to
approximately 370,000 policies with over 50 insurers which
were subject to dispute. In May, we agreed to participate in
the industry test case process, along with seven other insurers
and two customer action groups.
After the High Court decision in September, all parties involved
had the option to appeal some or all of the Judgment to a higher
court. Although Hiscox was ready to implement the High Court
Judgment, once others appealed, we felt we had no option but
to appeal and participate in the Supreme Court Hearing.
In January 2021, the Supreme Court Judgment largely
conrmed the outcome of the High Court’s ruling in respect of
Hiscox that, except in rare circumstances, cover is restricted
to Hiscox policyholders who were mandatorily closed.
Approximately one third of Hiscox’s 34,000 UK business
interruption policies may respond as a result. The Supreme
Court Judgment represents the nal outcome of the industry
test case, and there can be no further appeals. A process that
would normally take a number of years was completed within
nine months; almost lightning speed for any legal process of
this complexity. We have begun paying claims in line with the
Supreme Court Judgment. We have increased our claims
handling capacity and the process of collecting information
from customers who have cover and settling their claims is
well under way.
Hiscox’s exposure to potential business interruption claims
arising from further UK government restrictions to contain
the spread of Covid-19 has been running off at approximately
8% per month from June 2020, with residual exposure to be
largely run off by the end of June 2021. Following the Supreme
Court Judgment, the Group estimates exposure to restrictions
already announced in 2021 to be less than $40million if
restrictions extend to the end of June.
“To adapt to changing
demands we created
a talent exchange
which saw a number
of colleagues moving to
new roles, temporarily or
permanently, particularly
to support our frontline.”
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Chief Executive’s report
23Hiscox Ltd Report and Accounts 2020
Professional liability
Errors and omissions
Private directors
and ofcers’ liability
Cyber
Commercial
small package
Small technology
and media
Healthcare related
Media and
entertainment
Kidnap and ransom
Contingency
Terrorism
Product recall
Personal accident
Property
Marine
Aviation
Casualty
Specialty
Home and contents
Fine art
Classic car
Luxury motor
Asian motor
Commercial
property
Onshore energy
USA homeowners
Flood programmes
Managing
general agents
International
property
Cargo
Marine hull
Energy liability
Offshore energy
Marine liability
Public directors and
ofcers’ liability
Large cyber
General liability
SpecialtyReinsurance Art and
private client
Property Global
casualty
Marine
and energy
+3% -2%-14% -1%-6% +21% +27%
Small
commercial
$1,627m
$845m
$441m
$456m
$540m
$290m
$333m
An actively managed business mix
Total Group controlled premium 31 December 2020: $4,532 million
(Period-on-period in constant currency) 2020 GWP
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Chief Executive’s report
24 Hiscox Ltd Report and Accounts 2020
We clearly regret the uncertainty and anguish that the dispute
has caused to our customers, so it is important that we learn
from this experience. The most important lesson is the need for
clarity in wordings, to ensure intent is properly reected in the
policy detail. In addition, the customisation of policies has to
be restricted to ensure that there is not a long tail of wordings
serving very small numbers of customers. In 2021, we have
commenced a series of initiatives aimed at addressing
these issues.
Hiscox has undoubtedly suffered some brand damage this
year. While I was reassured that net customer numbers in the
UK remained stable in 2020, the route to restoring our brand
is the same one which created it; providing exible insurance
cover to meet each customer’s needs, paying each claim
fairly and quickly, and doing this all with good customer
service. Our reputation was built one risk, one claim, and
one customer at a time, and with that same focus, in time,
the brand will strengthen.
Hiscox Retail
Hiscox Retail comprises our retail businesses around the world:
Hiscox UK, Hiscox Europe, Hiscox USA, Hiscox Special Risks
and Hiscox Asia. In this segment, our specialist knowledge
and retail products differentiate us and our ongoing investment
in brand, distribution and technology helps us build a strong
market position in an increasingly digital world.
Hiscox Retail wrote $2.3 billion of premiums globally in 2020,
representing more than half of our Group’s gross premiums
and almost three-quarters net of reinsurance. In the face
of extremely challenging operating conditions, our Retail
business grew its top line by 3.2% and delivered growth in
four of its ve business units even as the pandemic spread
across the globe and caused economic havoc.
Hiscox Retail’s 2020 result is a loss of $237.6million
(2019:prot of $169.2million) and a combined ratio of 120.0%
(2019:99.3%). This result has been materially impacted by
Covid-19. Excluding the impact of Covid-19 claims, Hiscox
Retail delivered prots of $162million, the combined ratio
is at 97.7%, which is in line with our guidance.
At the end of 2020 and in 2021, we are making two
changes to improve the focus of Hiscox Retail. In late 2020,
we restructured our Special Risks division, integrating
its activities with Hiscox Europe, Hiscox USA and Hiscox
London Market. As a result, in 2021, $100million of Special
Risks premium income from Retail will be reported within
Hiscox London Market.
Over the past ve years the digitally traded direct and
partnerships segment has grown to be an increasing and more
attractive part of Hiscox USA’s business and it is where we
see long-term growth opportunity. To accelerate this strategic
shift, we have taken a decision to reshape our broker channel
book, by exiting liability business for customers with revenues
over $100million as well as all broker channel stand-alone
general liability business. We will also reshape our cyber book
to respond to adverse ransomware trends. These actions will
result in a reduction of up to $100million in the USA broker
channel which will be partially offset by continued strong
growth in digital direct and partnerships business.
The combined effect of these changes will result in a one-time
circa $200 million reduction in Retail premiums. In addition,
these changes together with more cautious loss picks adopted
for 2021 to reect the uncertain economic environment, and
the inevitable time taken to address xed costs as a result of
this premium reduction, will mean our goal of reaching 90% to
95% Retail combined operating ratio range is expected to take
to 2023. For 2021, we expect the Hiscox Retail combined ratio
to be broadly in line with the 2020 result, excluding Covid-19
claims. We then expect an improving trajectory to 2023 as
higher rates are recognised and the portfolio and expense
management actions start to earn through.
The outlook for our Retail business is good and we are
beginning to enjoy some positive rate momentum. We anticipate
that 2021 Retail gross premiums will grow at the low end of
our medium-term target range of 5%-15% on a like-for-like
basis after allowing for $200 million reduction in premiums.
Thereafter the business is expected to return to a high single
digits growth expectation as our direct and partnerships
business becomes a bigger contributor to the top line. One
of the accelerating trends during the pandemic has been the
shift to digital. Approaching $600 million of our 2020 Retail
revenues came from our digitally traded direct and partnerships
businesses, which now serves over 800,000 customers
globally. Continuing historical growth trends, this business
grew by 15% in 2020 with considerable room to grow further
into an estimated 50 million target market of small, micro and
nano businesses. We see this as a long-term opportunity for
future growth and value creation.
Hiscox Retail
2020
$m
2019
$m
Gross premiums written 2,266.3 2,19 6.3
Net premiums written 1,986.8 1,9 57.5
Underwriting prot (343.6) 36.5
†
Investment result 107.3 133.9
Prot before tax (237.6) 169.2
†
Combined ratio (%) 120.0 99.3
†
†
See note 4 to the nancial statements.
Chapter 3 51
Governance
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
Chapter 1 3
A balanced business
Chapter 2 17
A closer look
Chief Executive’s report
25Hiscox Ltd Report and Accounts 2020
Hiscox Europe
Hiscox Europe insures high-value household, ne art and
classic cars and commercial insurance for small- and
medium-sized businesses.
The business delivered a strong performance, growing gross
premiums by 9.5% to $447.1million (2019:$408.4million),
against the reduction in economic activity across European
markets as the pandemic hampered growth. It was protable
after providing for the Covid-19 losses it faced.
Germany remains the key engine of Hiscox Europe. Our German
business was the largest contributor to premiums in the region
and delivered very healthy growth of 15%, thanks to a strong
performance in commercial lines, technology and cyber.
Benelux also delivered strong double-digit growth, supported
by a strong performance in Belgium, which grew 16%.
Our operations in France have undergone a major transformation
over the last two years. To improve underwriting performance,
particularly in high-value household and commercial property, we
have exited some unprotable lines in the portfolio. This resulted
in subdued top line growth but improved bottom line protability.
Spain and Ireland both experienced mid-single digital
premium growth. In Spain, we continue to focus on
successful partnerships with banks and other carriers,
as well as technology and insurtech companies.
In Ireland, where our commercial lines book was a strong
growth driver early in the year, we have seen a material decline
in new business in line with the economic impact of Covid-19.
Alongside other local insurers, the team has been supporting
customers affected by Covid-19 with extended credit terms,
premium adjustments and other nancial measures.
Hiscox Europe expects to implement the rst phase of a new
technology platform during 2021, starting in Germany. This will
then roll out to other territories in subsequent years. This new
infrastructure will help us capture the growth opportunities we
see in both the traditional broker and digital channels.
Hiscox USA
Hiscox USA underwrites small- to mid-market commercial
risks through brokers, other insurers and distribution partners
and directly to businesses online and over the telephone.
Gross written premiums grew by 2.6% to $887.1million
Hiscox UK
Hiscox UK provides commercial insurance for small- and
medium-sized businesses, media, events and entertainment
as well as high net worth personal lines, ne art and
luxury motor.
Hiscox UK delivered a resilient performance in 2020.
Gross premiums written grew by 1.3% to $756.1million
(2019:$746.4million), which is a good performance given
the challenges of 2020.
Hiscox UK’s commercial business, both direct and through
the broker channel, has been the key driver of this
performance. The business had strong growth in the rst
two months of the year, despite the headwinds caused by
the IR35 tax changes which affect our direct commercial
client base. We shrank between March and June due to the
reduced level of business activity during the rst lockdown.
As the economy started to re-open over the summer period,
we saw signs of recovery in July and August which has
continued, and our direct commercial business had some of
the strongest months in its history in November and December.
Our high net worth personal lines and ne art business has
proven resilient. Revenues have been challenged as the
team showed discipline on broker commissions. We also
faced losses from Storms Dennis and Ciara in February as
well as a large, individual ne art loss. We simplied our
business by selling RH Specialist vehicle insurance as
the cross-sell opportunities were fewer than expected.
Our media, entertainment and events lines have faced
real challenges; not only due to pandemic-related losses,
but also as a result of dwindling media production and
events activity.
We have modest growth ambitions for the year ahead given
the broader economic uncertainties. We expect to see
continued headwinds from the implementation of IR35 in
April and ongoing subdued activity in media and events.
Offsetting this will be growth in new start-ups, either
voluntary or forced, which is a pattern we have seen in
previous tough economic conditions. We remain convinced
that this entrepreneurial activity and the shift to digital
will power Hiscox UK’s medium-term growth ambitions.
In 2021, we will focus on service quality, operational efciency
through automation and simplication, reviewing our policy
wordings, and investing in our broker relationships.
“Approaching
$600 million of our 2020
Retail revenues came
from our digitally traded
direct and partnerships
businesses, which now
serves over 800,000
customers globally.”
Chapter 3 51
Governance
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
Chapter 1 3
A balanced business
Chapter 2 17
A closer look
Chief Executive’s report
26 Hiscox Ltd Report and Accounts 2020
(2019:$865.0million). Planned reductions were made in
the broker channel in private company D&O and media
to improve our book, and these were offset by continued
strong growth in our direct and partnerships small commercial
business. This channel grew revenues by 22.7% in the year
to $337.7million and now insures approximately 430,000
customers. Our operations have proven to be robust in the
face of the pandemic. Despite the lockdown we continued
to deliver excellent uninterrupted service, taking nearly one
million calls with 80% answered within 20 seconds.
We have built this digital business since 2010 through ongoing
investment in our brand, technology and operational know-how.
Hiscox USA is now over half-way through a platform upgrade
which will support future growth. We have pursued an
omni-channel approach since we began, and so are less
constrained by the channel conict which affects some of
our competitors. Our customers have a choice of buying our
policies online end-to-end, by speaking to a Hiscox agent over
the telephone, or alternatively through a third-party broker or
insurance carrier partner. We follow an ‘all roads lead to Hiscox’
philosophy, ensuring we are available to do business with
our target customers whichever way they choose, and it has
served us well.
Our core target market are small, micro and nano businesses.
We estimate there are in excess of 30million businesses in
the USA with revenues of less than $25million. This market
is fragmented and these businesses are increasingly shifting
to digital ways of buying their insurance. Hiscox already has
approximately 430,000customers in this segment, so we enjoy
customer and data insights as well as economies of scale that
are not available to others.
Over the past ve years this segment has made up an
increasing and more attractive part of Hiscox USA’s business
and it is where we see our long-term future. To accelerate
this strategic shift, we have taken the decision to proactively
reshape our book by exiting liability business for customers
with revenues over $100million turnover as well as all broker
channel stand-alone general liability business. Given the rising
ransomware claims facing the market, we will also pull back in
cyber until there is signicant market re-rating combined with
changes in terms and conditions. These actions will result in
a reduction of up to $100million in the USA broker channel
which will be partially offset by continued growth in our
digital direct and partnership business.
Hiscox is already one of America’s leading digital small business
insurers. Our goal is to further cement our market position and
to continue capturing a leading share of over 30million small
businesses that represent the market opportunity ahead of us.
Hiscox Special Risks
Hiscox Special Risks underwrites kidnap and ransom, security
risks, personal accident, classic car, jewellery and ne art, with
teams in multiple locations.
Hiscox Special Risks wrote $127.8million in premiums,
broadly in line with the prior year period (2019:$129.9million).
Existing business retention has been strong and while we have
experienced heightened ransomware claims, this has been
mitigated by reinsurance.
Our Special Risks products are increasingly purchased by
our clients as part of a broader suite of crisis management
products and to reect this shift, we are moving to a
geographic distribution-led approach. Under the new
structure, locally-written kidnap and ransom business in
the USA and Europe will be written through the respective
Retail businesses, while a newly-created crisis management
division within Hiscox London Market will handle business
written in Guernsey, Miami and London. All business units
will continue to work closely with long-time partner and
market-leading response rm Control Risks.
The successful reorganisation of the Special Risks business was
completed in the fourth quarter of 2020 and as a result Special
Risks ceased to exist as a stand-alone unit from 1January2021.
The Group’s nancial reporting in 2021 will reect this change,
resulting in $100million of premium from the Retail segment
now being reported within Hiscox London Market.
Hiscox Asia
Our brand in Asia, DirectAsia, is a direct-to-consumer business
operating in Singapore and Thailand that sells predominantly
motor insurance.
In this challenging year, DirectAsia grew its written premiums by
26% to $48.2million. Thailand posted an exceptional 58% growth,
with Singapore delivering a respectable 10% increase, despite
the extended Covid-19 lockdowns which seriously impacted
its travel and partnerships business. Thanks to this growth,
underwriting discipline and diligent management, DirectAsia
has seen a signicant improvement in its combined ratio.
Hiscox London Market
2020
$m
2019
$m
Gross premiums written 1,023.4 9 6 7.9
Net premiums written 570.9 504.6
Underwriting prot 40.7 (26.3)
†
Investment result 56.6 50.6
Prot before tax 97. 2 23.3
†
Combined ratio (%) 93.7 105.6
†
†
See note 4 to the financial statements.
Chapter 3 51
Governance
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
Chapter 1 3
A balanced business
Chapter 2 17
A closer look
Chief Executive’s report
27Hiscox Ltd Report and Accounts 2020
Hiscox London Market is also making steady progress in its
own digital initiatives. These plans have two strands. The rst
is through supporting the Lloyd’s market initiatives, where we
bound over 90% of our risks through PPL, the Lloyd’s market
digital platform. The second involves digital trading with
brokers and coverholders not located in London. FloodPlus
allows us to price risks in real-time with US coverholders,
managing aggregate and pricing on a day-to-day basis,
especially important when a river is in ood. Across all lines we
traded almost $75million of business through non-traditional
digital means. Our medium-term ambition is to grow this
steadily to $250million. We see this as a critical step to allow
Hiscox London Market to concentrate most of its underwriting
talent in London, while using digital tools to unlock growth
opportunities around the world.
In 2021, Hiscox London Market will benet from the continuing
hardening market. Thanks to Syndicate 33’s stamp capacity
of £1.7billion we have sufcient headroom to do this. We will
judiciously increase our aggregate exposures, with most
growth coming from rates. As a result, we expect London
Market growth in 2021 in mid to high single digits delivered
at improving margins. The compounding impacts of rate and
portfolio improvements in recent years will, we believe, drive
attractive multi-year protability.
Hiscox Re & ILS
The Hiscox Re & ILS segment comprises the Group’s reinsurance
activities in London and Bermuda and insurance-linked
security (ILS) activity through our family of funds in Bermuda.
2020 saw gross written premiums reduce by 14.2%, to
$743.4million (2019:$866.5million), driven by a disciplined
approach to price inadequacy at the start of the year.
This includes $15.1 million of reinstatement premiums
(2019:$87.2million). Hiscox Re & ILS made a loss of
$35.1million (2019: loss of $107.6million). Excluding Covid-19
claims it made a prot of $28.4million; this is a good
result considering the high frequency of North American
catastrophe and weather-related events in 2020 and adverse
developments in exited healthcare and casualty business.
After a cautious start at the January renewals, we returned
to growth as the market began to harden from April
onwards. Overall, we have achieved a 12% average rate
increase, with positive rate momentum carrying through to
January2021 renewals.
Hiscox London Market
Our London Market business is the star performer of 2020.
It continues to use the global licences, distribution network
and credit rating of Lloyd’s to insure clients throughout the
world. The team’s focus over the past several years has
been on improving portfolio quality in a rising market so
growth is modest at 5.7%, taking gross written premiums
to $1,023.4million (2019:$967.9million). A focus on
quality has been rewarded with prots of $97.2million
(2019:$23.3million) and a net combined ratio of 93.7%,
a 11.9% improvement on 2019. More importantly, we
have delivered an underwriting prot of $40.7million
(2019: loss of $26.3million), even after including $13million
of Covid-19-related losses.
This improvement reects the hard work under a ‘3-1-1’ plan.
Here, we have sought to reduce the loss ratio by 3%, reduce
commissions by 1% and reduce the expense ratio by 1%.
This was initiated several years ago and its implementation
has steadily become more rigorous, requiring a combination
of organisational and orchestration skills and effective
risk by risk negotiations. This has seen us drive rate
improvements of 20% in 2020, with 16 of our 17 lines enjoying
price rises and ten lines beneting from double-digit rate
increases. This is now the fourth year of rate increases with
cumulative increases of 43% since 2017.
The most signicant rate improvement continues to be seen
in casualty lines such as US public company D&O and US
general liability, alongside terms and conditions improvements,
and reduced line sizes. In the marine and energy book
trends are positive, with rates increasing by 24% in cargo,
and 20% in hull.
In our property lines we saw rate growth of 20% in major
property where we grew our average line size over the
year. We have reduced exposure in household and
commercial binders through non-renewal of contracts,
increased rates and by restricting aggregate in certain
counties. These will ow into our results in 2021 and 2022
as new terms and increased rates feed into the portfolios.
As part of this optimisation, we undertook a large data
project which allowed us to match historic policies and
claims at a risk level. Going forward, we will aim to do this
on a quarterly basis, so we can target rate changes and
aggregate management to use our capital in the most
effective way.
Hiscox Re & ILS
2020
$m
2019
$m
Gross premiums written 743.4 866.5
Net premiums written 192.7 216.7
Underwriting prot (67.7 ) (144.7)
†
Investment result 33.6 38.5
Prot before tax (35.1) (107.6 )
†
Combined ratio (%) 131.8 169.9
†
†
See note 4 to the financial statements.
28 Hiscox Ltd Report and Accounts 2020
Chapter 3 51
Governance
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
Chapter 1 3
A balanced business
Chapter 2 17
A closer look
Chief Executive’s report
During the year we have been reshaping the book to focus
where we see the most opportunity. In US property
catastrophe and excess of loss, we adjusted the portfolio
away from the more capital-intensive nationwide covers and
Florida programmes. In the international catastrophe book,
we secured rate increases of 16% in Japan, in line with an
updated view of typhoon risk which reects two active
years for Japanese windstorm losses. Net exposure in
our retrocession book was up 65% as we sought to take
advantage of rate improvements of over 20%.
In 2020, Hiscox ILS assets under management declined
slightly to $1.4billion (2019:$1.5billion). The slight reduction
on the previous year is mostly due to redemptions we
reported last year.
In 2021, Hiscox Re & ILS will benet from the deployment of
some of the proceeds from the Group’s equity raise earlier
in the year. We expect that our net written premium
growth will exceed growth in gross written premiums as
Hiscox Re & ILS retains more risk in the strongest reinsurance
market in several years.
Claims
Claims experience in the year has been mixed. We have
beneted from some frequency reduction due to the lower
levels of activity during the lockdowns. At the same time, we
saw a number of large marine liability losses, exposure to
the Beirut explosion, oods in the UK, some US tax-related
professional liability claims as well as claims from multiple
Atlantic hurricanes. All of these claims, and our normal
attritional and large losses, together with Covid-19-related
claims in all territories, have been handled by our claims teams
in their usual award-winning manner. I would like to thank them
all for their professionalism in very challenging circumstances.
Our claims teams took the lead in managing our participation
in the UK industry test case, and now that it is over, are
managing our claims settlement processes. We have created
signicant surge capacity, drawing on resources in the UK,
USA and Australia to make sure we have the capacity to deal
with all claims fairly and quickly.
During the year we made material progress in claims
transformation. In the USA we completed the insourcing of
some of our legal work, and where we do rely on external
lawyers, we have renegotiated hourly rates and consolidated
vendors to make this more cost-effective. This is part of our
global initiative to create a single vendor management
platform integrating all external providers across our markets,
which has already led to signicant panel cost savings in the
USA and Europe.
We have also made strides towards a data-based operating
model for claims by quadrupling the data analytics team,
driving deployment of machine learning tools to analyse
our loss portfolios and launching a fraud mitigation tool in
the UK. In 2020, we built a quality assurance portal to automate
the claims control environment which is already live in the
USA and will be deployed to the rest of the business in 2021.
The high quality of the Hiscox claims experience has been
recognised by brokers in the London Market and across
the UK. The Lockton Claims Survey ranked Hiscox as the
number one performer out of 37 peer insurers. AON’s 2020
‘Voice of the Client Claims Insights Global’ rated Hiscox’s net
promoter score as 15th best out of 475 participating insurers.
Hiscox was also one of just two insurers to be awarded ve
stars in Insurance Times’ 2020 Personal Lines Ratings.
Information technology and major projects
Over the past ve years we have progressively been
replacing our core systems which has allowed us to
benet from the digital shift accelerated by the pandemic.
In the USA we implemented the rst two phases of our new
technology platform in the direct and partnerships business.
We expect to complete the programme by the end of the
third quarter in 2021 allowing us to continue marching
towards the signicant digital SME opportunity. In the UK,
we have steadily improved our portfolio underwriting
capability and 90% of our new and renewal business is now
handled through automated underwriting rules. In Europe
we are working on our technology replacement programme,
with implementation beginning in Germany during 2021.
We have also been working on interfaces to connect our
partner’s systems to ours. Across the world we are now
connected to 158 partners in this way.
In addition to systems supporting our frontline teams, we
are close to the end of our nance transformation programme.
This programme has replaced many legacy systems and
processes allowing our nance team to keep pace with
the scale of business we are now, and the growth to come.
The next nance focus is preparing for IFRS 17.
“We have made strides
towards a data-based
operating model for
claims by quadrupling
the data analytics team,
driving deployment of
machine learning tools
and launching a fraud
mitigation tool in the UK.”
Reinsurance
20%
Large property
11%
Casualty
7%
Specialty – terrorism, product recall
5%
Marine and energy
6%
Small commercial
29%
Tech and media casualty
6%
Art and private client
10%
Specialty – kidnap and ransom,
contingency, personal accident
4%
Small property
2%
Chapter 3 51
Governance
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
Chapter 1 3
A balanced business
Chapter 2 17
A closer look
Chief Executive’s report
29Hiscox Ltd Report and Accounts 2020
“We are close to the end of
our nance transformation
programme, which will
allow our nance team
to keep pace with the
scale of business we
are now, and the growth
to come.”
Big-ticket business
A Larger premium, globally traded, catastrophe-exposed
business written mainly through Hiscox London Market
and Hiscox Re & ILS.
A Shrinks and expands according to pricing environment.
A Excess prots allow further investment in retail
development.
Retail business
A Smaller premium, locally traded, relatively less volatile
business written mainly through Hiscox Retail.
A Growth between 5-15% per annum.
A Pays dividends.
A Specialist knowledge differentiates us and investment
in brand builds strong market position.
A Prots act as additional capital.
Strategic focus
Total Group controlled income for 2020
100% = $4,532 million
30 Hiscox Ltd Report and Accounts 2020
Chapter 3 51
Governance
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
Chapter 1 3
A balanced business
Chapter 2 17
A closer look
Chief Executive’s report
“We manage our
investment portfolio
to provide sufcient
liquidity to pay claims,
and capital to support
the underwriting
business, while
generating strong
risk-adjusted returns.”
Portfolio – asset mix
Investment portfolio $7,630 million as at 31 December 2020
Asset allocation
Bonds 71.7
Cash and cash equivalents 20.7
Risk assets 7.6
Bond credit quality
Gvt 19.9
AAA 7.5
AA 15.7
A 29.0
BBB 26.0
BB and below 1.9
Bond currency split
USD 68.9
GBP 18.1
EUR 8.8
CAD and other 4.2
31Hiscox Ltd Report and Accounts 2020
Chapter 3 51
Governance
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
Chapter 1 3
A balanced business
Chapter 2 17
A closer look
Chief Executive’s report
pre-Covid levels, reducing yields materially. The current yield
to maturity on the bond portfolio is at its lowest ever at just
0.4% (December2019:1.6%).
We continue to look through ongoing volatility to steadily
invest into positions where valuations present attractive
long-term risk and capital adjusted outcomes.
Capital and balance sheet strength
Hiscox’s approach to capital management is to ensure our
balance sheet is sufciently robust to absorb large shocks,
whether due to insurance losses or economic stress, while
maintaining the nancial exibility to seize opportunities as
they arise.
Our capital position during the year was bolstered by
a £375million non-pre-emptive equity placement.
I would like to thank our shareholders for the support
they provided to our business during a very challenging
time. The capital raised externally was supplemented
by action taken internally during the year to generate
around $65million of capital saving by combining our
two Bermuda-based reinsurance carriers.
At the end of the year, the Hiscox Group estimated a
regulatory solvency ratio of 190%, after absorbing our
2020 loss and the second stage of the Bermuda Monetary
Authority’s strengthening of its solvency regime.
Over the period 2019 to 2021 the Bermuda Solvency
Capital basis is being strengthened, resulting in higher
capital requirements; to the end of 2020 this has had a
zero percentage point impact on the Hiscox coverage ratio.
The nal stage of basis strengthening will occur in 2021
and is expected to reduce the coverage ratio by
10-15 percentage points. This basis strengthening is
expected to be funded by organic capital generation.
We remain A-rated by S&P and A.M. Best and A+ by Fitch.
We have a toolset of proactive capital management
measures at our disposal which can help provide capital
relief, reduce volatility and bolster our balance sheet strength
further. In 2020, ahead of the North America hurricane season,
we purchased approximately $100million of additional
catastrophe reinsurance in the form of industry loss warranties.
We are also looking at legacy reinsurance solutions and may
execute one or more of these in 2021 if the cost and capital
efciency they provide is attractive.
As Hiscox has grown organically, we have often introduced
complexity to win every piece of business and handle every
customer need. This means we have too many legal entities,
too many wording variations, too many sub-scale business
relationships and too many suppliers. Under the rubric of
the Hiscox simplication programme we are addressing
these and other unnecessary complexities in 2021.
We expect the savings generated will help deliver on our
plan to reduce our expense ratio by 1% a year over the next
two-to-three years. It will also ensure our business is easier
to manage and control.
Investments
We manage our investment portfolio with two main
objectives in mind: providing sufcient liquidity to pay
claims and providing capital to support the underwriting
business, while generating strong risk-adjusted
returns. Despite the turbulence of 2020, the portfolio
strategy helped us navigate the volatile markets well.
The investment returns for 2020 were very robust
at $198million (2019:$223million) after investment
expenses, a return of 2.8% (2019:3.6%).
After a difcult start to 2020 we saw a signicant
improvement in market sentiment in the second half
of the year. Incremental additions to risk assets during
the depths of the crisis have performed well and helped
boost returns for the year. Encouraged that the end of
the pandemic is in sight, the assets of the most affected
sectors of the economy surged on the expectation
that economic activity may improve markedly in 2021.
We have subsequently taken prots in some of our risk
asset positions.
Corporate bond spreads have now retraced much of the
Q1 2020 widening given the backdrop of ongoing scal and
monetary policy support. Given the high quality of corporate
bonds held, we remain comfortable maintaining our current
credit exposures. While equity markets have rebounded
generally, we have seen signicant divergence in valuations
between regions and sectors and so maintain modest
exposure to selected risk assets.
While the full year 2020 investment return is well ahead of
the original forecast, more meagre investment returns should
be expected for 2021. Government bond yields are close to
zero, while credit spreads for high-quality bonds are now at
“Our current capital
position is sufcient
to support our 2021
business plan, allowing
us to take advantage
of the hardening
market in our big-ticket
businesses.”
Chapter 3 51
Governance
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
Chapter 1 3
A balanced business
Chapter 2 17
A closer look
Chief Executive’s report
32 Hiscox Ltd Report and Accounts 2020
Our current capital position is sufcient to support our 2021
business plan, allowing us to take advantage of the hardening
market in our big-ticket businesses. These businesses already
have scale, and as can be seen from Hiscox London Market’s
2020 result, a judicious balance of exposure increases,
portfolio optimisation and compounding rate rises leads to
attractive returns. We anticipate that the strong return to prot
of our big-ticket businesses will allow us to drive growth in
our retail business. This makes use of the inherent strength
of our balanced business and allows us to position Hiscox to
benet from the generational shift to digital trading in the small
business sector around the world.
In the face of the uncertainty arising from Covid-19 and the losses
it generated, the Board took the decision not to pay a 2019 nal
or 2020 interim dividend. In view of the full year loss and a desire
to have capital to deploy into a strong market, the Board has also
taken the decision not to pay a 2020 nal dividend. The Board
believes that as our business delivers the 2021 business plan
and as prots ow through, it will, subject to approval at the
time, resume paying dividends with the 2021 interim results.
Environmental, social and governance
Across the world there has been heightened scrutiny and
expectations on companies to consider environmental,
social and governance factors in their day-to-day business.
As insurers we are keenly aware of the impact of climate trends
and volatility on the risks that we face and take them into active
consideration in the pricing and management of our exposures.
In the 2020 update of the Hiscox view of risk, we adjusted it
to account for recent trends in severe typhoon activity and
will keep reviewing climate-related activity on a peril-by-peril
basis. We also have taken proactive steps to support those
at risk from climate impacts through insurance products like
FloodPlus, and in reinsurance, FloodXtra.
Hiscox has long sought to reduce its own carbon footprint,
targeting a 15% real-term reduction in our Scope 1, 2 and 3
carbon emissions per FTE by the end of 2020, relative to
2014. We have achieved this target, completing a 45%
real-term reduction in Scope 1, 2 and 3 carbon emissions
per FTE over that period. Covid-19 has had a one-off positive
impact by driving down business travel, currently one of the
biggest contributors to our emissions, and we will assess what
level of business travel is right for us going forward, though as
a global business it cannot be eradicated completely. We will
also set new near- to medium-term carbon emission reduction
targets in 2021, aligned to the Science Based Targets initiative,
and dene our action plan for limiting emissions. This will
support our established carbon offsetting programme which
ensures we operate in a carbon-neutral manner, having been
carbon neutral through offsetting since 2014.
With the publication of these results Hiscox has announced
its commitment to steadily reduce and eliminate by 2030 the
insurance and reinsurance of coal-red power plants and coal
mines; Arctic energy exploration, beginning with the Arctic
National Wildlife Refuge; oil sands; and controversial weapons
such as land mines. These commitments are aligned with
the Lloyd’s ambitions announced in December and will take
effect from 1January2022, though their implementation has
already begun.
Hiscox is a member of ClimateWise, a constituent of CDP,
the Dow Jones Sustainability Index and FTSE4Good, and
our assets are managed by rms that are aligned with the
UN-supported Principles for Responsible Investment.
We are committed to being a sustainable business and will
ensure that our business practices continue to evolve to
support the transition to a net-zero world.
Our staff are involved in a myriad of environmentally-focused
activities. These include beach clean-ups in Bermuda, creating
virtual reality experiences that allow our brokers to experience
a Category 5 hurricane, promoting recycling initiatives in our
ofces, and establishing new partnerships that detect water
leaks early; thereby reducing water wastage in customer’s
homes. I am proud of these efforts, and more information on
them is available in our 2020 climate report on our corporate
website. This complies with our Task Force on Climate-related
Financial Disclosure obligations.
In a year of signicant trauma for the communities in which
we operate, Hiscox increased its social support signicantly.
We supplied meals to NHS staff at The Royal Marsden Hospital,
together with one of our UK catering partners; supported
small businesses in the USA by giving staff $100 each to
spend locally; funded ventilators at hospitals in Guernsey
and Bermuda; provided 4,000 nights of emergency
accommodation for vulnerable young people; and
contributed to the Association of British Insurers’
Covid-19 Support Fund. We supported good causes
in every country where we operate during the year and
donated over $9million in total.
“Hiscox London Market’s
stellar performance
supported by prots
in Hiscox Europe and
Hiscox Special Risks and
better-than-expected
investment returns,
mitigated the impact
of the pandemic.”
33Hiscox Ltd Report and Accounts 2020
Chapter 3 51
Governance
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
Chapter 1 3
A balanced business
Chapter 2 17
A closer look
Chief Executive’s report
We also took additional steps to support our employees this
year. WeMind, Hiscox’s mental health and well-being employee
network, has been very active, providing new mental health
training and expert webinars and promoting the services of
our in-house mental health rst aiders. Our other employee
networks, such as our Parents and Caregivers network,
have also found new ways to connect and collaborate.
Finally, in 2020, we launched an updated Hiscox Group
Governance Framework which claried interactions,
expectations and decision making across Hiscox Ltd,
the Group and business units. This structure will prove
useful to ensure that the Group acts in concert and clear
prioritisation can be taken, with individual Boards having
ownership and accountability for critical decisions in a
challenging time and ensuring compliance with local
regulatory expectations.
People
2020 has been a truly tough year and it is our people who
have persevered against all odds, showing resilience,
adaptability and determination. Thanks to the individual
and collective efforts of over 3,000 staff, Hiscox has
weathered the storm and I can only thank each and every
one of them.
One of the signs of a hardening market is increasing
competition for talent. Hiscox has invested in both new
and experienced underwriters and we have been nurturing
expertise across all ranks of the organisation. This has
helped create our culture and reputation in the market.
We are, and want to continue to be, a great place to work
for the ambitious and talented, so it is no surprise that we
are on occasion targeted by others. Hiscox has business
maturity and market presence, so the market conditions
that make start-ups attractive investments, apply equally
to us on a larger scale. Rewards will follow as our business
delivers on its plans.
In October, the Group announced that Kathleen Reardon
had been appointed as CEO of Hiscox Re & ILS. Kathleen
has spent the last six years as CEO of Hamilton Re and she
brings a deep understanding of the market, a huge amount
of underwriting expertise, a proven ability to build a business
across the cycle and develop talent. She succeeded Mike
Krefta who decided to take a career break after 17 years
at Hiscox and leaves with our thanks and good wishes.
Mike rose through the Hiscox ranks from an entry-level
position in a career which spanned both Retail and big-ticket,
operations, analytics and underwriting and London and
Bermuda. In addition, Mike was our ESG Executive Sponsor
and we owe him a debt of gratitude, for leading and at times
cajoling our response to inform the proactive, forward-looking
approach we have today.
We continue to attract talent at all levels, including through
our graduate scheme in the UK, USA and Germany and
our UK summer intern programme which changed to a virtual
programme in 2020. We are pressing ahead with similar
programmes for 2021, with a focus on reaching new and
diverse talent pools. Hiscox has a diverse set of leaders
at the Executive Committee, business unit CEO and
functional leader level, but this wanes in the middle ranks.
We are committed to addressing this both through adapting
our internal processes and through partnerships in the UK
with The Bright Network, The Brokerage, Afro Caribbean
Insurance Network, and targeted recruitment in the USA,
Bermuda and Europe with our existing recruitment partners.
We also have internal schemes to continue to train and
develop mid-ranking staff to reach our target of lling
50% of all promotions with internal candidates.
All these efforts will ensure that Hiscox remains a desirable
and fullling place to work.
Outlook
In 2021, we expect to see the benets of our balanced business
strategy asserting itself in a proactive manner after the past
four years where the benets have been mostly defensive.
In 2017-2019, prots in our Retail business offset the pressures
of the bottom of the cycle faced by Hiscox London Market
and Hiscox Re & ILS. In 2020, Hiscox London Market’s stellar
performance supported by prots in Hiscox Europe and Hiscox
Special Risks and better-than-expected investment returns,
mitigated the impact of the pandemic.
In 2021, I expect our big-ticket businesses to perform well,
thanks to the increased capital allocated to them, their
judiciously positioned portfolios, and the benet of compound
rate increases. Hiscox London Market and Hiscox Re & ILS are
in their best markets for almost half a decade and their focus is
on driving prots over maximising scale. This will provide good
returns for shareholders and allows our Retail businesses to
navigate the economic uncertainties within their respective
countries of operation.
I also expect that we will see good growth of our Retail digital
endeavours, focused as they are on the one-to-ten person
rms which grow in number as people leave larger rms and set
up in business themselves. Hiscox Retail will face headwinds
from the 10-250 person rms who are likely to be most affected
by the uncertainty of a post-pandemic economy and our own
portfolio improvement activity.
Where we see opportunities we will use some of the big-ticket
prots to drive our Retail businesses forward with investments
greater than they can afford alone, making sure we can capture
more than our fair share of the structural shift to digital in the
small business segment.
Our priorities next year are to ensure we maintain the strict
discipline of underwriting for prot, streamlining our model to
simplify the business and, most importantly, energising our
teams. 2021 has started well and our sense of ownership and
connectedness will allow us to thrive as we capitalise on the
opportunity that lies ahead of us.
Bronek Masojada
Chief Executive Ofcer
3 March 2021
0.0
0.5
1.0
1.5
2.0
2.5
3.0
A.M. Best S&P Fitch Hiscox
integrated
capital model
(economic)
Hiscox
integrated
capital model
(regulatory)
Bermuda
enhanced
solvency
capital
requirement
$2.43 billion available capital
Economic
Regulatory
Chapter 3 51
Governance
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
Chapter 1 3
A balanced business
Chapter 2 17
A closer look
34 Hiscox Ltd Report and Accounts 2020
Capital
The Board monitors the Group’s capital strength, ensuring
Hiscox remains suitably capitalised for regulatory and rating
purposes, and to fund future growth opportunities.
Monitoring of the Group’s capital requirements is based on
both external risk measures, set by regulators and rating
agencies, and our own internal guidelines for risk appetite.
The Group measures its capital requirements against its
available capital, which is dened by the Group as the total
of net tangible asset value and subordinated debt. The
subordinated debt issued by the Group is hybrid in nature,
which means it counts towards regulatory and rating agency
capital requirements. At 31 December 2020 available capital
was $2,431 million (2019:$2,276million), comprising net
tangible asset value of $2,055 million (2019:$1,912million)
and subordinated debt of $376million (2019:$364million).
The Group can source additional funding from its borrowing
facilities which comprise a revolving credit and Letter of
Credit facility as well as a Tier 1 Funds At Lloyd’s facility.
Standby funding from these sources comprised $946million
(2019: $800 million), of which $524 million was utilised
as at 31 December 2020 (2019: $50 million).
In order to take advantage of opportunities for protable
growth in wholesale and reinsurance markets, as a result
of capital contraction and rate improvement across the
market following the uncertainty caused by Covid-19, the
Group raised £375 million in capital in May2020 in the
form of an equity placement. This has provided additional
exibility throughout the year to respond to growth
opportunities and rate improvement, particularly in
big-ticket lines.
Our key rating agencies, A.M. Best, S&P and Fitch, calculate
capital adequacy by measuring available capital, after
making various balance sheet adjustments, and comparing
it with required capital, which incorporates charges for
catastrophe, premium, reserve, investment and credit risk.
Our interpretation of the results of each of these models
indicates that we are comfortably able to maintain our
current A ratings. Being an A-rated business is important to
us, and our intention is to maintain our current strong ratings.
The Group manages the underwriting portfolio so that in a
1-in-200 aggregate bad year it will lose no more than 12.5%
of core capital plus 100% of buffer capital ($135 million),
with an allowance for expected investment income.
A market loss of this magnitude would be expected to
bring about increases in the pricing of risk, and the
Group’s capital strength and nancial exibility following this
scenario means we would be well positioned to take advantage
of any opportunities that might arise as a result.
The Group is regulated by the Bermuda Monetary Authority
(BMA) under the Bermuda Group Supervisory Framework.
The BMA requires Hiscox to monitor its Group solvency and
provide a return in accordance with the Group Solvency Self
Assessment (GSSA) framework, including an assessment of
the Group’s Bermuda Solvency Capital Requirement (BSCR).
The BSCR model applies charges for catastrophe, premium,
reserve, credit and market risks to determine the minimum
capital required to remain solvent throughout the year.
The GSSA is based on the Group’s own internally-assessed
capital requirements and is informed by the Group-wide
Hiscox integrated capital model (HICM) that, together with the
BSCR, forms part of the BMA’s annual solvency assessment.
The HICM provides a consistent view of capital requirements
for all segments of the business and at Group level.
The Group’s estimate for the year-end 2020 BSCR solvency
coverage ratio is 190%, which includes the second stage of
changes to the BSCR standard formula being phased in by
the BMA over a three-year period, which began in 2019.
The changes are expected to reduce the Group’s BSCR
solvency coverage ratio by an estimated ten percentage
points over the next year.
The Group expects to further mitigate the impact of
the changes to the BSCR standard formula through
ongoing capital generation over the remaining year of
the transition period.
The Group continues to operate with a robust solvency
position and expects to maintain an appropriate margin of
solvency after these changes have taken effect. In addition,
each of the respective insurance carriers holds appropriate
capital positions on a local regulatory basis.
0.0
0.5
1.0
1.5
2.0
2.5
3.0
A.M. Best S&P Fitch Hiscox
integrated
capital model
(economic)
Hiscox
integrated
capital model
(regulatory)
Bermuda
enhanced
solvency
capital
requirement
$2.43 billion available capital
Economic
Regulatory
Chapter 3 51
Governance
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
Chapter 1 3
A balanced business
Chapter 2 17
A closer look
Capital
35Hiscox Ltd Report and Accounts 2020
Projected capital requirement
Estimated BSCR post new formula
Rating agency assessments shown are internal
Hiscox assessments of the agency capital
requirements on the basis of projected year-end
2020 results. Hiscox uses the internally developed
Hiscox integrated capital model to assess its own
capital needs on both a trading (economic) and
purely regulatory basis. All capital requirements
have been normalised with respect to variations
in the allowable capital in each assessment for
comparison to a consistent available capital gure.
The available capital gure comprises net tangible
assets and subordinated debt.
147
The Hiscox businesses are rated
‘A’ by A.M. Best and S&P and
A+ by Fitch. Read more in note 3
to the nancial statements.
Read more about our nancial condition
in our nancial condition report
hiscoxgroup.com/about-hiscox/
group-policies-and-disclosures
O
R
S
A
p
r
o
c
e
s
s
Risk appetite
Risk owner
Risk measurement
Risk mitigation
Risk monitoring
Risk reporting
Risk denition
Chapter 3 51
Governance
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
Chapter 1 3
A balanced business
Chapter 2 17
A closer look
36 Hiscox Ltd Report and Accounts 2020
Risk management
We seek to maximise return on equity by taking risk where it is
adequately rewarded, within a dened risk appetite.
Our risk appetite is set out in risk appetite statements, which
outline the level of risk we are willing to assume, both by type
and overall, and dene our risk tolerances: the thresholds
whose approach would represent a ‘red alert’ for senior
management and the Board.
Risk appetites, which are set for each of our insurance
carriers and for the Group as a whole, are reviewed annually,
enabling us to respond to internal and external factors
such as the growth or shrinkage of an area of the business,
or changes in the underwriting cycle that may have an
impact on capacity and rates. In addition, in 2020 we
continued work to enhance and strengthen our risk appetite
statements across the Group.
The Group’s core business is to take risk where it is adequately
rewarded, guided by a strategy that aims to maximise return
on equity within a dened risk appetite. The Group’s success
is dependent on how well we understand and manage our
exposures to principal risks.
Risk strategy
Our robust risk strategy positions us to capture the upside of
the risks we pursue and effectively manage the downside of the
risks to which we are exposed. It is based on three key principles:
s we maintain underwriting discipline;
s we seek balance and diversity through the
underwriting cycle;
s we are transparent in our approach to risk, which
allows us to continually improve awareness and
hone our response.
Risk management framework
The Group takes an enterprise-wide approach to managing
risk. The risk management framework provides a controlled
system for identifying, measuring, managing, monitoring and
reporting risk across the Group. It supports innovative and
disciplined underwriting across many different classes of
insurance by guiding our appetite and tolerance for risk.
Exposures are monitored and evaluated both within the
business units and at Group level to assess the overall level
of risk being taken and the mitigation approaches being used.
We consider how different exposures and risk types interact,
and whether these may result in correlations, concentrations
or dependencies. The objective is to optimise risk-return
decision-making while managing total exposure, and in
doing so remain within the parameters set by the Board.
The risk management framework is underpinned by a system of
internal control, which provides a proportionate and consistent
system for designing, implementing, operating and assessing
how we manage our key risks. This framework is regularly
reviewed and enhanced to reect evolving practice on risk
management and governance. Over 2020, we continued to
embed and strengthen our system of internal control.
Risk appetite
The risk appetite sets out the nature and degree of risk the
Group is prepared to take to meet its strategic objectives and
business plan. It forms the basis of our exposure management
and is monitored throughout the year.
Risk governance
Risk management framework
Our continuing success depends on how well we understand
and manage the signicant exposures we face.
ORSA
documentation
Business
planning
Risk
assessment
Capital
and solvency
assessment
Assurance
Chapter 3 51
Governance
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
Chapter 1 3
A balanced business
Chapter 2 17
A closer look
Risk management
37Hiscox Ltd Report and Accounts 2020
Hiscox Own Risk and Solvency Assessment
(ORSA) framework
The Group’s ORSA process is an evolution of its long-standing
risk management and capital assessment processes.
Risk management across the business
The Group coordinates risk management roles and
responsibilities across three lines of defence. These are
set out in the table below. Risk is also overseen and
managed by formal and informal committees and working
groups across the rst and second lines of defence.
These focus on specic risks such as catastrophe,
reserving, investments and credit, as well as emerging
risks. The Group Risk and Capital Committee and the
Group Underwriting Review Committee make wider
decisions on risk.
The Own Risk and Solvency Assessment (ORSA) process
The Group’s ORSA process involves a self-assessment
of the risk mitigation and capital resources needed to
achieve the strategic objectives of the Group and relevant
insurance carriers on a current and forward-looking
basis, while remaining solvent, given their risk proles.
The annual process includes multi-disciplinary teams
from across the business, such as capital, nance and
business planning.
ORSA governance
Third line of defence
Provides independent assurance of risk control
Provides independent assurance to the Board that risk control
is being managed in line with approved policies, appetite,
frameworks and processes, and helps verify that the system of
internal control is effective. Consists of the internal audit function.
First line of defence
Owns risk and controls
Responsible for ownership and management of risks on a
day-to-day basis. Consists of everyone at every level in the
organisation, as all have responsibility for risk management
at an operational level.
Second line of defence
Assesses, challenges and advises on risk objectively
Provides independent oversight, challenge and support to
the rst line of defence. Includes the Group risk team and the
compliance team.
Three lines of defence model
“Given the rapid pace of change during
2020, I am pleased that the robust
risk management and governance
framework we have established over
the years – along with the discipline
we have embedded in the business
– served us well. This meant we were
able to respond and adapt quickly,
maintaining resilient operations and
making timely risk-based decisions
even in such unusual circumstances.”
Hanna Kam
Group Chief Risk Ofcer
Chapter 3 51
Governance
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
Chapter 1 3
A balanced business
Chapter 2 17
A closer look
Risk management
38 Hiscox Ltd Report and Accounts 2020
The role of the Board in risk management
The Board is at the heart of risk governance and is
responsible for setting the Group’s risk strategy and
appetite, and for overseeing risk management (including
the risk management framework). The Risk Committee of
the Board advises on how best to manage the Group’s risk
prole by reviewing the effectiveness of risk management
activities and monitoring the Group’s risk exposures, to
inform Board decisions.
The Risk Committee relies on frequent updates from
within the business and from independent risk experts.
At each of its meetings during the year, the Risk Committee
reviews and discusses a risk dashboard and a critical risk
tracker which monitors the most signicant exposures to
the business, including emerging risks and risks that have
emerged but are evolving. The Risk Committee also
engages in focused reviews. Stress tests and reverse
stress tests (scenarios such as those shown in the chart
opposite, which could potentially give rise to business
failure as a result of a lack of viability or capital depletion)
are also performed and reported on to the Risk Committee.
During 2020, the Risk Committee actively tracked the
changing risk landscape and potential impacts to the
Group’s risk prole.
In light of these arrangements, the Directors are satised
that a robust assessment of the emerging and principal
risks facing the Company, including those that would
threaten its business model, future performance, solvency
or liquidity, has been carried out during the year and no
material changes to the principle risks are required.
The role of the Group risk team
The Group risk team is responsible for designing and
overseeing the implementation and continual improvement
of the risk management framework. The team is led by
the Chief Risk Ofcer who reports to the Chief Executive,
the Risk Committee of the main Board and to those of the
relevant subsidiary boards.
The team works with the rst-line business units to
understand how they manage risks and whether they
need to make changes in their approach. It is also
responsible for monitoring how the business goes
about meeting regulatory expectations around
enterprise risk management.
2020 has seen a continued focus on improving the efciency
of the risk management framework, mainly through the
streamlining and automation of repeatable cycles and
further development and embedding of the risk and control
self-assessment process. This drive for efciency allows for
an increase in risk deep-dives and for more support to be
available to the portfolio of Group-wide change programmes,
as well as ensuring appropriate support and challenge is
provided to the rst-line in assessing, understanding and
responding to risks emerging out of Covid-19.
12
Read more about our key risks.More information on our approach to
risk management can be found at
hiscoxgroup.com/about-hiscox/
risk-management
0
100
200
300
400
500
600
700
700
600
500
400
300
200
100
0
JP
EQ
JP
WS
EU
WS
US
EQ
US
WS
02 05 06 02 24
JP
EQ
JP
WS
EU
WS
US
EQ
US
WS
07 10 12 06 49
JP
EQ
JP
WS
EU
WS
US
EQ
US
WS
21 19 19 18 89
JP
EQ
JP
WS
EU
WS
US
EQ
US
WS
32 30 26 36 135
JP
EQ
JP
WS
EU
WS
US
EQ
US
WS
44 45 33 64 195
Industry loss return
period and peril
5–10 year 10–25 year25–50 year50–100 year 100–250 year
Mean industry loss US$bn
Chapter 3 51
Governance
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
Chapter 1 3
A balanced business
Chapter 2 17
A closer look
Risk management
39Hiscox Ltd Report and Accounts 2020
Superstorm Sandy – $20bn market loss
7-year return period
Hurricane Katrina – $50bn market loss
21-year return period
1987 J – $10bn market loss
15-year return period
Loma Prieta Quake – $6bn market loss
15-year return period
Northridge Quake – $24bn market loss
40-year return period
2011 Tohoku Quake – $25bn market loss
45-year return period
Hurricane Andrew – $56bn market loss
25-year return period
Property extreme loss scenarios
Boxplot and whisker diagram of Hiscox Ltd net loss ($m) for certain modelled losses
January 2021
Hiscox Ltd loss ($m)
Upper 95%/lower 5%
Modelled mean loss
This chart shows a modelled range of net loss the Group might expect from any one catastrophe event.
The white line between the bars depicts the modelled mean loss.
The return period is the frequency at which an industry insured loss of a certain amount or greater is likely to occur.
For example, an event with a return period of 20 years would be expected to occur on average ve times in 100 years.
JP EQ – Japanese earthquake, JP WS – Japanese windstorm, EU WS – European windstorm, US EQ – United States earthquake, US WS – United States windstorm.
Chapter 3 51
Governance
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
Chapter 1 3
A balanced business
Chapter 2 17
A closer look
40 Hiscox Ltd Report and Accounts 2020
Stakeholder engagement
We have a diverse range of stakeholders whose engagement is
critical to our continued success. We engage with, consider and
respond to our stakeholders’ needs at various levels of the Group,
up to and including Board level.
Regular investor dialogue
We maintain regular dialogue with our shareholders
beyond the nancial reporting cycle, predominantly
via our Chief Financial Ofcer and investor relations,
who meet with existing shareholders, potential
investors and research analysts, and participate
in industry conferences and roadshows. During
2020 they conducted over 300 meetings and met
with over 130 investors.
Financial reporting
We report to the market on Company performance
four times per year, which provides shareholders
with a quarter-by-quarter overview of business
performance and trading conditions. These are
published on our corporate website, and available
as an email alert for subscribers.
Annual Report and Accounts
Our Annual Report and Accounts gives
shareholders a more detailed view of the
business. It also includes some additional
corporate governance disclosures beyond
our statutory requirements, where we think
that doing so improves our narrative reporting.
Investor roadshows
Our Chairman and Executive Directors maintain
a programme of investor roadshows to give
investors an opportunity to learn more about
Company strategy, strategic priorities, trading
conditions and other factors affecting our
operations. In 2020, our Chairman and Executive
Directors met with investors representing over
70% of our issued share capital.
Annual General Meeting (AGM)
Our AGM provides another regular investor
touchpoint. At the 2020 AGM all resolutions
were passed, with votes in favour ranging
from 88% to 100%.
Workforce engagement
Our annual employee engagement survey gives all
our employees the opportunity to provide honest
feedback on how they feel about Hiscox. We also
have an employee engagement network, led by
our Employee Liaison and Non Executive Director,
Anne MacDonald. For more, see page 48.
Training and development
All employees have access to internal and
external resources to help drive their own
learning and development, as well as two
formal opportunities each year to discuss
development needs and potential.
Employee networks
Over 1,700 employees are actively engaged in
at least one of our 12 employee networks.
From WeMind (mental health and well-being)
and Pan-African to Women at Hiscox and LGBT+,
each network provides focused discussion,
practical activities and support.
Communication updates
Employees receive regular updates on business
plans and performance through emails and
newsletters, intranet articles, team meetings
and Company-wide ‘connected’ events.
Annual ‘launch’ events and ‘box’ meetings
Business unit leaders hold regular all-staff
meetings to align on strategy and objectives,
share news and celebrate those marking ten
or 20 years at Hiscox with long-service awards.
Partners’ meetings
Hiscox Partner is an honorary title given to
employees who make signicant contributions
to the development and protability of the
Group. Up to 5% of the total workforce are
Hiscox Partners, and have the opportunity
to inuence the direction of our business
through regular formal and informal Partners’
meetings, which Board members also attend.
UK Living Wage
We believe a hard day’s work deserves a fair day’s
pay, which is why we are an accredited UK Living
Wage employer.
Chartered Insurer status
Hiscox UK and Hiscox London Market have
Chartered Insurer status from the Chartered
Insurance Institute, which recognises the
professionalism and expertise of staff, and is
a marker for attracting high-quality business
partners including brokers.
Annual preferred broker summit and
broker academy
For the last ten years we have held an annual
preferred broker summit for our UK brokers, to
share insight and expertise. Our London Market
business also hosted its fourth annual broker
academy to educate and inform in 2020.
Broker satisfaction survey
Each year we measure broker satisfaction
with our products and services. In 2020, this
involved surveying over 1,000 UK, US and
London Market brokers.
Attending key broker events
We participate in key broker events in every
part of our broker-facing business. This includes:
BIBA, a UK insurance and broker conference;
the CIAB, a US marketplace meeting for
commercial property and casualty brokers
and insurers; and, in our big-ticket business,
Monte Carlo, Baden Baden, and RIMS.
Educational seminars
Throughout the year we hold educational events
and roadshows for brokers to improve knowledge
of complex or unusual risks. In 2020, this included
events on cyber, claims trends, professional
indemnity and navigating market conditions.
Broker newsletters and thought leadership
In the UK, our broker newsletter of claims stories,
product updates and events is enjoyed by over
5,000 brokers, while our London Market business
produces regular thought-leadership content. In
2020, this included a ‘MarketTalk’ video series
on topics such as the state of the market, market
modernisation and the future of the London
insurance marketplace.
Brokers
The risks we write through brokers account for
around 85% of our business so it is essential
that we build strong and lasting relationships
with those brokers that share our values.
Employees
We want to build teams that are as diverse as our
customers and create a vibrant work environment
where all employees can thrive.
Shareholders
Our shareholders value our consistent strategy,
successful track record of delivery, strong
underwriting discipline and sound capital
management, and we maintain ongoing
engagement with them.
Chapter 3 51
Governance
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
Chapter 1 3
A balanced business
Chapter 2 17
A closer look
Stakeholder
engagement
41Hiscox Ltd Report and Accounts 2020
Research and insight
We talk to thousands of customers each year,
through surveys, focus groups and other
qualitative research, which helps us to continually
improve our offering. We also measure our
customer service by collecting feedback after
they have contacted our service centre, bought
a product or made a claim. For more, see page 5.
Sharing useful content
We share news, opinion pieces and tips with
some of our core customer groups through
newsletters and blog content. This includes our
US ‘side hustle to small business’ campaign
which showcased how individuals turned their
side hustle into a fully-edged small business.
Vulnerable customers
We have an established team of 20 vulnerable
customer champions in the UK, whose work is
supported by tailored policies and procedures for
those customers that are identied as vulnerable.
Piloting new technologies
We work with our customers to pilot new
technologies that aid risk prevention. This includes
leak prevention technology, Leakbot, which we
have so far provided to almost 2,000 of our UK
home buildings insurance customers.
Educational tools
We have developed tools to help customers
better understand their risk exposure – for
example, our cyber exposure calculator
helps businesses of different sizes in different
jurisdictions to estimate the value of their
company’s data.
Cover during Covid-19
In response to Covid-19, we extended cover in
some lines such as home and motor, provided
premium refunds for event insurance customers,
waived 30-day cancellation periods for commercial
insurance policyholders, and offered a range
of nancial concessions including payment
holidays. These changes resulted in more frequent
communications with our customers in 2020.
Regular dialogue
Our Chief Compliance Ofcer and central compliance
team lead our relationships with regulators worldwide
and maintain regular dialogue with them. In 2020,
the team engaged with our various regulators,
with involvement from senior management and
the Board when required, including on the impact
of Covid-19. Discussions included the initial and
ongoing operational impact of remote working,
customer support initiatives, and the potential
solvency impact of different types of claims arising
from the pandemic. We also participated in an
insurance industry test case organised by the UK
Financial Conduct Authority. For more, see page 22.
Regulatory change
We contribute to the regulatory change process,
both directly and through active membership
of trade associations, such as the Association
of Bermuda Insurers and Reinsurers and the
Association of British Insurers. In 2020, subjects
covered included the proposed UK operational
resilience regime, potential changes to the EU
Solvency II Directive, and changes to privacy
requirements in Bermuda and the USA.
Supervisory co-operation
In 2020, our Group supervisor the Bermuda
Monetary Authority (BMA) hosted a supervisory
college, which included nearly all of the Group’s
regulators worldwide. This is an important annual
opportunity for us to present a consistent message
to our regulators on issues of common interest, so
seven members of our senior management team
participated in the session.
Scenario analysis and stress testing
We maintain a regular cycle of stress testing and
scenario analysis to ensure we manage risk well
and evolve at the same pace as the risks we cover.
We also continue to participate in regulator-led
exercises such as the biennial General Insurance
Stress Test (GIST) – facilitated by the UK’s
Prudential Regulation Authority – which was
last completed in 2019.
Regulatory reporting
The Group and its subsidiaries met all material
regulatory reporting obligations for 2020.
Customers
We have over 1.3 million retail customers worldwide
and providing each of them with products they can
rely on is what we are here for.
Regulators
We are a global business with a responsibility to
engage with regulators in all jurisdictions where
we operate. The Group is regulated in Bermuda,
and has regulated subsidiaries worldwide.
“We have built strong relationships with
our distribution partners, and this year
we found new ways to work and engage
with them. Virtual meetings, social and
educational events proved popular, with
more than 25,000 participants attending
our webinars across Europe during 2020.
Our technology investments in recent
years, including in broker extranet sites,
also made it easier for our brokers to do
business with us, and resulted in more
than 60% of small commercial business
being traded online.”
Stéphane Flaquet
Chief Executive Ofcer, Hiscox Europe
Chapter 3 51
Governance
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
Chapter 1 3
A balanced business
Chapter 2 17
A closer look
42 Hiscox Ltd Report and Accounts 2020
Environmental, social and governance (ESG)
We take our role in the world seriously and want to play a
responsible part in society.
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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.
Chapter 3 51
Governance
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
Chapter 1 3
A balanced business
Chapter 2 17
A closer look
Environmental, social
and governance (ESG)
Latest ESG disclosure scores
43Hiscox Ltd Report and Accounts 2020
ESG measurement
Our ESG efforts are measured both internally and externally.
Externally, we participate in a number of key ESG indices
and we report against Task Force on Climate-related
Financial Disclosures (TCFD)-aligned principles in our
annual climate report.
Internally, we set key performance indicators for ESG issues
which are periodically reviewed and rened.
ESG oversight
Our ESG Executive Sponsor is responsible for overseeing
our ESG efforts, working with the Executive Committee and
the Board to ensure our practices and policies continue to
evolve. Facilitated discussions on ESG took place at both an
Executive Committee and Board level during 2020, and these
sessions focused on approving the Group’s new responsible
investment policy and our approach to ESG-related exclusions,
developing our internal KPIs and agreeing the ESG plan
for 2021.
Oversight in action:
Non Executive Director focus groups on ESG
During 2020, we held a number of focus groups with our Non
Executive Directors to explore a range of ESG issues with
them outside of the main Board meetings. These sessions
covered issues including our exposure to fossil fuels and other
contentious industries in underwriting and investments, ESG
measurement and assessment, ESG risks and opportunities,
and future ESG training requirements. The outputs from these
sessions have proven valuable, informing our 2021 ESG plans,
and similar focus groups will now become a regular feature of
our annual ESG planning process.
2020: 35/100
2019: 31/100
2020: 25.6
2019: 28.0
ESG working group
s Drives day-to-day efforts on the ground.
s Chaired by ESG Executive Sponsor.
s Meets at least monthly.
s Includes representatives from underwriting,
investments, risk and corporate affairs.
2020: C grade
2019: C grade
2020: 4.1/5
2019: 4.2/5
Executive Committee
s Approves ESG strategy and priorities.
s Oversight of ESG delivery.
s Regularly reviews plans and progress.
Hiscox Ltd Board
s Oversight of ESG strategy and priorities.
s Discusses ESG twice-yearly.
s Provides challenge and approval of key
ESG matters.
ESG oversight in the business
“ESG really matters to me, and it
matters to Hiscox. We made great
progress this year through pragmatism
and focus, and in 2021 we will build
on this – embedding our divestment
policies and setting new carbon
reduction targets which are aligned to
the Science Based Targets initiative.”
James Millard
Chief Investment Ofcer
and ESG Executive Sponsor
2020: 66%
2019: 46%*
* Change of methodology
in 2019.
Chapter 3 51
Governance
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
Chapter 1 3
A balanced business
Chapter 2 17
A closer look
Environmental, social
and governance (ESG)
44 Hiscox Ltd Report and Accounts 2020
We carefully manage our environmental impact and work
with our customers, suppliers and business partners to
respond to the changing climate. For Hiscox, this means
looking at our operations and how we can reduce waste
– water, electricity and other consumption – helped by our
growing network of green teams. It also means investing
in areas such as research, catastrophe modelling and new
technologies that improve our underwriting capabilities
and benet our brokers and customers.
Key developments from the year
Exposure reduction commitments to support move to
low-carbon economy
(Re)insurers have a role in ensuring an orderly transition to a
low-carbon economy and we want to play our part. Our aim
is to reduce steadily and eliminate by 2030 our insurance,
reinsurance and investment exposure to coal-red power
plants and coal mines; Arctic energy exploration, beginning
with the Arctic National Wildlife Refuge; oil sands; and
controversial weapons such as land mines. These ambitions
form our new Group-wide ESG exclusions policy, which aligns
with the Lloyd’s ESG ambitions published in December 2020.
Embedding rhythm and accountability in our approach
to climate change
We take a strategic, holistic and long-term approach
to managing the risks arising from climate change,
considering the potential impact to all aspects of the
Group’s risk prole and balance sheet. During 2020, we
further formalised our approach; ensuring that physical,
transition, liability and reputational risks arising from
climate change, and their potential impacts, are monitored,
managed and owned across the business via repeatable
cycles of activity and considered over a range of business
planning time frames, while also taking into account wider
market and regulatory trends. We have established a
cycle of reporting to the Executive Committee and Board
on climate-related issues, and appointed two senior
managers with regulatory responsibility for managing
the nancial risks from climate change onto our relevant
UK boards. We have also held a number of Board
informational sessions on climate change during 2020,
where current exposure to – and management of – climate
change risks were discussed. We will continue to develop
and embed our approach and legal-entity specic plans
further in 2021.
Evolving the Hiscox view of risk for Japanese windstorm
Following several active years for Japanese windstorms,
which inicted sizable market losses, in 2020 we undertook a
fundamental reappraisal of windstorm risk in the region. This
meant looking at our evolving knowledge of the peril and its
potential impact on catastrophe models – with a particular
focus on hazard, vulnerability, data quality, and climate change.
This is particularly important as the granularity of the available
exposure data in the region does not compare favourably to the
data available in other parts of the world – for example in the
USA, where it is customary to use location-level information.
This reappraisal enabled us to gain insights on model behaviour
at various scales, including the potential effects of ‘urban
canyons’ – the wind tunnels created in urban areas as a result
of tall buildings – and the role that climate change can play in
our understanding of current Japanese windstorm risk. Each
new event provides us with a new data point with which to
update the Hiscox view of risk and the 2018 and 2019 Japanese
windstorm events have – along with this reappraisal – enabled
us to evolve our modelling approach and as a result improve
underwriting performance in this line of business.
Strengthening our internal expertise and focus on
climate change
We continue to invest in our in-house capabilities around
climate change. We are creating a new climate change
research role to further our understanding of climate-related
threats and opportunities, which will contribute to the ongoing
development of the Hiscox view of risk from a climate change
perspective, and also to business and portfolio insights from a
risk management perspective. We are also establishing a new
climate implementation group to increase our focus on climate-
related developments and drive climate-related innovation
– particularly in our underwriting, research and modelling.
Current carbon reduction targets met and new targets
in development
Hiscox targeted a 15% real-term reduction in our Scope 1, 2
and 3 carbon emissions per FTE by the end of 2020, relative to
2014. While we have achieved this target, having completed a
45% real-term reduction in Scope 1, 2 and 3 carbon emissions
per FTE over that period, some of this achievement is as a result
of the positive impact that Covid-19 has had on reducing
business travel, which is currently the biggest contributor to
our emissions. We are in the process of setting new targets
which are aligned to the Science Based Targets initiative
(SBTi) and plan to publish these during 2021.
Our ESG framework in action
Environmental
Understanding climate
risk and helping our
customers to adapt.
GHG emissions 2020
Activity
Energy
(kWh)
Emissions
(tCO
2
e)
Scope 1 total 467
Natural gas 1,710,200 316
Company cars 560,441 151
Scope 2 total (location-based) 1,565
Electricity (location-based) 5,176,116 1,565
Scope 3 total 231
Personal vehicles 899,189 231
Total 8,345,946 2,263
Chapter 3 51
Governance
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
Chapter 1 3
A balanced business
Chapter 2 17
A closer look
Environmental, social
and governance (ESG)
45Hiscox Ltd Report and Accounts 2020
Robert Caton
Director of Underwriting Risk
and Reinsurance
“We have a market-leading catastrophe
research and modelling team, including
climate scientists, whose expertise
– combined with the latest academic
insights and our own underwriting
and claims experience – enables us to
provide accurate coverage and pricing
of climate-related risks, even as these
risks evolve. We already consider climate
change for perils such as wildre and
Japanese typhoon, and in 2021 our
work will focus on quantifying its impact
on ood and convective storms.”
CO
2
Our reappraisal of
Japanese windstorm
risk is improving
underwriting
performance in our
catastrophe-exposed
business.
2020 was our sixth year
as a carbon-neutral
business.
We worked with Ghani
solar renewable
power project in
India to offset our
11,505 CO
2
e tonnes
of emissions in 2020.
We achieved a
20 percentage
point increase in our
ClimateWise score
for 2020, where we
disclosed against
TCFD-aligned principles.
We partnered with
Cycle2Work on a UK
cycle to work scheme to
make travelling to and
from the ofce in a more
environmentally-friendly
way more affordable.
Scope 1, 2 and 3
emissions reduced
by 45% in 2020 to
2.01 tCO
2
e per full-time
employee (FTE)
Chapter 3 51
Governance
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
Chapter 1 3
A balanced business
Chapter 2 17
A closer look
Environmental, social
and governance (ESG)
46 Hiscox Ltd Report and Accounts 2020
We strive to be a good employer, a trusted insurer and a
good corporate citizen, recognising that there is not a
‘one-size-ts-all’ solution to such matters; no claim, person
or plight is the same as another. We take our role in the
world seriously and so our claims philosophy, our strategy
for charitable giving and our employment practices all
contribute to our social narrative. It’s why we have had a
charitable foundation – The Hiscox Foundation – since
1987, and why we have Hiscox Gives, which creates
meaningful volunteering opportunities for employees.
Key developments from the year
Supporting ethnic diversity and social justice
We strive to be an inclusive employer and to create workplaces
where employees feel they can be themselves regardless of
their background. Following the death of George Floyd and the
ensuing protest movement, we responded with a number of
initiatives aimed at demonstrating our commitment to racial and
social justice. In the USA, we donated to noteworthy charities
like the Equal Justice Initiative and National Cares Mentoring
Movement, piloted a diverse talent development programme
specically aimed at African-Americans, and enhanced our
unconscious bias training programme for managers. We also
empowered our US employees by giving them $100 each to
spend at a black-owned business of their choice. In the UK, we
launched a new chapter of our Pan-African employee network,
which led our inaugural celebration of UK Black History
Month with a keynote speaker and kickstarted a programme of
networking and educational opportunities for our UK employees.
Redeploying our people to best serve changing
customer needs
We have always been responsible stewards of our resources
and as Covid-19 took hold in the UK we swiftly reassessed
the needs of our customers and our people. Recognising
that the pandemic would generate increased customer queries
and claims, at the same time as some of our employees would
need to work fewer or less regular hours due to the demands
of juggling work and home life during lockdown, we launched
a talent exchange programme to draw more resource to
the frontline. This enabled 27 employees – from areas
including recruitment, internal audit and facilities management
– to be rapidly upskilled and temporarily redeployed to
customer-facing roles. The talent exchange programme
not only ensured that our customers enjoyed uninterrupted
service when they needed us the most, it also invigorated
those involved and gave them a host of new skills to take back
to their day jobs.
Enhancing small business’ access to essential services at
a time of need
Small businesses have been among those hit hard by the
global pandemic, but through new partnerships we have
endeavoured to increase their access to essential services,
such as access to nance. In the USA, we have teamed up with
Accion, which provides capital, coaching and connections to
entrepreneurs; the Women’s Business Development Center,
which offers technical assistance and nancial advisory
services including micro-lending to women and underserved
communities; and the Women’s Business Enterprise Council,
which serves established businesses by providing networking,
programming, and nancial consulting services. In the UK,
we are working with Swoop to improve small business access
to funding, and with Business in the Community as part of
their National Business Response Network which connects
business support with community need, and we have also
established the Hiscox Business Support Hub to give our
small business customers access to a range of free or
signicantly discounted services during this time.
Taking the temperature with our global employee
engagement survey
Each year, we survey our global employee base to nd out
more about how employees feel about Hiscox, its leadership,
their managers and their roles. In 2020, over 2,500 employees
responded; 77% told us they felt proud to work for Hiscox,
83% said employees are treated fairly regardless of disability,
age or professional background, 90% said they believe in our
corporate values, and 91% said they are given the exibility
in their job to manage their work/life balance. In addition,
manager effectiveness scores improved six percentage points
year-on-year to 81% following a Group-wide effort to improve
in this area. Given the events of the year we also asked how
well we have managed the change in working environment and
supported employees through the pandemic, and 86% said
we have managed this well. All these scores will inform our
work in 2021 around nurturing talent in new ways, which is
one of our business priorities for the year ahead (see page 13).
Our ESG framework in action
Social
Global themes,
locally executed to
make an impact.
Chapter 3 51
Governance
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
Chapter 1 3
A balanced business
Chapter 2 17
A closer look
Environmental, social
and governance (ESG)
47Hiscox Ltd Report and Accounts 2020
This year we signed the
Race at Work Charter
in the UK, furthering
our commitment to
increase ethnic and
racial diversity across
our organisation.
86% of employees said
we managed the change
in working environment
well in 2020, and that
they felt supported.
27 of our UK employees
were redeployed to
frontline roles to support
our customers during
Covid-19.
We donated over
$9million to good
causes in 2020, and
published a special
edition Covid-19
impact report.
We paid out $1.9 billion
in claims worldwide
in 2020.
“2020 marked my rst year as Executive
Sponsor for diversity and inclusion
and what a year it’s been. We now have
12 employee networks with over 1,700
members, whose passion for progress
is fantastic to see. We’re also improving
diversity within our succession planning,
with at least one female successor
targeted for each leadership role;
kick-starting our race and ethnicity
agenda with new actions plans; and
broadening out where we search for
talent via new partnerships.”
Kate Markham
Chief Executive Ofcer, Hiscox London
Market and D&I Executive Sponsor
Causes our people are passionate about
Protecting and preserving the environment
Social mobility and entrepreneurship
Our three strategic pillars for
charitable giving
We are active members
of Insuring Women’s
Futures, a Chartered
Insurance Institute
initiative aimed at evolving
our industry’s approach
to women and risk.
Chapter 3 51
Governance
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
Chapter 1 3
A balanced business
Chapter 2 17
A closer look
Environmental, social
and governance (ESG)
48 Hiscox Ltd Report and Accounts 2020
As a global insurer, good governance practices are
essential to our day-to-day business of serving customers
and paying claims. Good governance encompasses not
just having the appropriate internal controls, policies and
procedures, and structures and oversight; it also requires
our 3,000+ staff to be accountable for their actions and
empowered to raise their hand if something goes wrong.
Naturally it also means complying with the laws and
regulations that are relevant to our operations, so as a
Bermuda-incorporated company with a UK listing, we
comply with the Bermuda Companies Act, UK listing
rules and local country laws.
Key developments from the year
Piloting culture dashboards in our subsidiary boards
During 2020, we began piloting culture dashboards across
a number of our subsidiaries to allow those boards and
leadership teams to create a rigorous and repeatable
process for measuring and monitoring culture. Through
this approach, we set out a number of culture standards
we wish to live by, around themes such as openness,
diversity and inclusion, customer-centricity, respectful
personal behaviour, operational focus, diligence in risk
management, and good leadership. We are then able to
assess whether the agreed standards are being met via
a list of pre-agreed culture metrics, which measure
everything from customer net promoter scores and
number of complaints received, to employee engagement
scores and gender diversity at every level of the business.
Our culture dashboards are reviewed monthly by business
unit leadership teams and shared with the relevant subsidiary
boards, and the ndings are used to inform areas of focus
when it comes to maintaining the right culture. In the UK,
we also have a culture steering committee that helps drive
progress through their monthly meetings to discuss culture
indicators, culture strategies and new culture projects.
Establishing a rhythm with our employee
engagement network
In 2019, we formalised our existing approach to workforce
engagement by establishing an employee engagement
network, led by Non Executive Director Anne MacDonald in her
capacity as Employee Liaison. While the Board has historically
engaged with the workforce and continues to leverage the
pre-existing infrastructure to ensure that Hiscox is motivating
and engaging employees in an effective way, the employee
engagement network ensures workforce views are considered
in its decision-making process. The Employee Liaison
facilitated eight meetings in 2020 with a representative group
of 30 employees from across the business, supported by
our Head of Diversity and Inclusion and Group Company
Secretary. These sessions explored some of the key themes
from our most recent employee engagement survey – such
as the communication of business plans, how the updated
values have been embedded in the organisation, manager
effectiveness, and personal development tools and support
for career paths – as well as the impact of Covid-19 on
home-working and our ability to achieve business objectives.
Anne has provided regular Board updates on these sessions,
enabling the Board to get even closer to employee engagement
and culture trends, and the workforce feedback received has
informed Board discussions in areas such as remuneration.
Where appropriate, outputs from the network are also raised
and addressed at Executive Committee level – allowing course
corrective action to be taken swiftly if needed.
Monthly cycle of employee training
In 2020, employees received a range of mandatory new and
refresher training across regulatory issues, information security
and learning and development. The 2020 training programme
built on the regime introduced in 2019, with modules including
cyber security, nancial crime, underwriting controls, working
in a regulated environment, privacy and reporting regulatory
incidents. Given the move to remote working in response to
Covid-19, new modules included taking security home, safe
web browsing, and staying secure in a connected world.
Governance in a Covid-19 world
During a turbulent year, it was important for us to engage more
with our shareholders to update them on the evolving situation
and reassure them of our response. We held over 30 meetings
with shareholders, representing over 70% of our share
register. The Board also met more frequently in 2020, with 17
informational sessions to assess our exposures and responses.
Their sessions covered all aspects of the pandemic, and
updates to the Board included potential loss exposures,
our reinsurance programmes, reputation and engagement
with regulators. The Board also carefully considered our
remuneration approach for such an extraordinary year. Given
our remuneration policy is designed to focus on long-term
performance and drive long-term shareholder value, no
bonuses were paid to Executive Directors in 2020, however
personal performance bonuses were paid to frontline staff.
Our ESG framework in action
Governance
Compliance with the
Bermuda Companies
Act, UK listing rules,
and local country laws.
Chapter 3 51
Governance
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
Chapter 1 3
A balanced business
Chapter 2 17
A closer look
Environmental, social
and governance (ESG)
49Hiscox Ltd Report and Accounts 2020
Over 43,000 training
hours completed
in 2020.
Ten climate-related
disclosures to
regulators and global
independent ESG
standards completed.
Five new phishing
campaigns tested
our internal responses
to IT threats in 2020,
alongside new
information security
training modules.
The Board held 17
informational sessions
in 2020, meeting more
frequently to assess
Covid-19 exposures
and responses.
“As Employee Liaison I have been very
pleased with the broad representation
and views received through the employee
engagement network. I have found the
conversations open and honest – a
testament to Hiscox’s culture – and the
direct communication has served as a
valuable tool to give the Directors insight
into what people are thinking, and to
validate or contribute to matters that,
as a Board, we are considering.”
Anne McDonald
Independent Non Executive Director
and Employee Liaison
Read more about our approach to
ESG online at
hiscoxgroup.com/responsibility
50 Hiscox Ltd Report and Accounts 2020
51Hiscox Ltd Report and Accounts 2020
Chapter 3:
Governance
3
Owning the Hiscox view of risk
When it comes to natural catastrophes,
understanding how these risks evolve
over time is vital when it comes to
coverage levels and contract pricing.
For three consecutive years (2017-2019),
the industry experienced signicant loss
activity as a result of Japanese typhoons,
US hurricanes and California wildres,
and Hiscox Re & ILS was not immune
to this. These types of large loss events
indicated a trend towards more intense
natural catastrophes over time, leading
to higher claims frequency and severity
– and addressing them required an
ownership approach.
Our Re & ILS team worked to review and
rene what we call ‘the Hiscox view of
risk’ for both Japanese windstorm and
California wildre. Their work meant
examining existing catastrophe models
and research, proprietary claims insight
and key factors such as hazard level,
vulnerability, data quality and climate
change. There is complexity in this
kind of data analysis, and each natural
catastrophe event provides a new
data point to challenge, rene and
advance our understanding. The
team’s work has enabled us to evolve
our modelling approach and improve
underwriting performance in our
catastrophe-exposed business.
We’ll get there by
learning and
improving just a
little bit every day.
52 Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Board of Directors
Non Executive Chairman
Robert Simon Childs (Aged 69)
Appointed Chairman: February 2013
Appointed to the Board: September 2006
Relevant skills, experience and contribution
s Extensive knowledge of Hiscox, having
worked for the Group for over 30 years.
s Signicant expertise in insurance cycle
management, having worked through
unprecedented large loss events
such as 9/11 and Hurricanes Katrina,
Rita and Wilma.
Robert joined Hiscox in 1986 and has held a
number of senior roles across the Group, including
Active Underwriter for Syndicate 33 and Group
Chief Underwriting Ofcer, before becoming Non
Executive Chairman in February 2013. Robert is
also Chair of the Nominations and Governance
Committee, the Investment Committee, and the
Hiscox Syndicates Limited Board. He joined the
Council of Lloyd’s in 2012 and served as Deputy
Chairman of Lloyd’s from 2017 to 2020.
External board appointments
The Bermuda Society.
Executive Director
Bronislaw Edmund Masojada (Aged 59)
Group Chief Executive
Appointed to the Board: October 2006
Relevant skills, experience and contribution
s Strong track record of building long-term
value, helping guide the Group from initial
listing to a $4 billion revenue business.
s Wide-ranging capability in business
planning and executing strategy.
Bronek joined Hiscox in 1993 as Group Managing
Director and became Chief Executive in 2000.
Bronek also sits on the Board of a number of
Hiscox subsidiary companies. Prior to that he
worked with McKinsey & Company, where he
advised Lloyd’s on its renowned Reconstruction
and Renewal plan. Bronek also previously served
as Deputy Chairman of Lloyd’s and Chairman of
the Lloyd’s Tercentenary Research Foundation,
and currently serves as a City of London Alderman.
External board appointments
Association of British Insurers; Pool Reinsurance
Company Limited; Policy Placement Limited.
Executive Director
Hamayou Akbar Hussain (Aged 48)
Group Chief Financial Ofcer
Appointed to the Board: September 2016
Relevant skills, experience and contribution
s Considerable experience of providing
strategic, nancial and commercial
management and in-depth knowledge of
the regulatory and compliance environment.
s Signicant expertise in leading major
change programmes.
Aki joined Hiscox in 2016 as Group Chief
Financial Ofcer and also sits on the Board
of a number of Hiscox subsidiary companies.
Aki came to Hiscox from Prudential, where
he was Chief Financial Ofcer of its UK and
Europe business. Before that, he held a number
of senior roles across a range of sectors,
including Finance Director for Lloyds Banking
Group’s consumer bank division until 2009.
Aki is a Chartered Accountant, having trained
with KPMG.
External board appointments
Visa Europe Limited.
Executive Director
Joanne Musselle (Aged 50)
Group Chief Underwriting Ofcer
Appointed to the Board: March 2020
Relevant skills, experience and contribution
s Considerable underwriting expertise,
including experience of managing
underwriting portfolios in our key markets.
s Signicant knowledge of Hiscox,
particularly Hiscox Retail, having
worked for the Group for 18 years.
Joanne joined Hiscox in 2002 and has held a
number of roles across the Group, including
Head of UK Claims, Chief Underwriting Ofcer
for Hiscox UK & Ireland, and Chief Underwriting
Ofcer for Hiscox Retail. Joanne also sits on
the Board of a number of Hiscox subsidiary
companies. Prior to Hiscox, Joanne spent
almost ten years working in a variety of actuarial,
pricing and reserving roles at Axa and Aviva in
both the UK and Asian markets.
External board appointments
Realty Insurances Ltd.
Senior Independent Director
Colin Keogh (Aged 67)
Appointed to the Board: November 2015
Relevant skills, experience and contribution
s Valuable nancial services experience.
s Signicant knowledge of how to run an
international nancial business.
Colin has spent his career in nancial services,
principally at Close Brothers Group plc where
he worked for 24 years and served as CEO for
seven years until 2009. Colin is also Chair of the
Remuneration Committee and of the Hiscox
Insurance Company Limited Board.
External board appointments
Ninety One Plc and Premium Credit Limited.
Independent Non Executive Director
Caroline Foulger (Aged 60)
Appointed to the Board: January 2013
Relevant skills, experience and contribution
s Extensive accounting and nancial
reporting expertise.
s Deep understanding of Bermuda as a
reinsurance centre.
Caroline is a resident of Bermuda and led PwC’s
insurance and reinsurance practice in Bermuda
until her retirement in 2012. With a strong
background in accounting, she is a Fellow of the
Institute of Chartered Accountants in England and
Wales, a member of the Institute of Chartered
Accountants of Bermuda and a member of the
Institute of Directors. Caroline also serves on the
Hiscox Insurance Company (Bermuda) Limited
and Hiscox Syndicates Limited Boards as a
Non Executive Director and is Chair of the
Audit Committee.
External board appointments
Oakley Capital Investments Limited; Catalina
Holdings (Bermuda) Ltd; Generation Life Ltd;
General Two Ltd; Atlas Arteria; Ocean Wilsons.
53Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Board of Directors
Independent Non Executive Director
Michael Goodwin (Aged 62)
Appointed to the Board: November 2017
Relevant skills, experience and contribution
s Signicant knowledge of the Asian
insurance market.
s Deep understanding of risk management
as a trained actuary.
Michael has over 25 years’ experience in the
insurance industry, having worked in Australia
and the Asia Pacic region for QBE Insurance
Group for over 20 years. Michael started his
career as an actuary, is a Fellow of the Institute
of Actuaries of Australia and served as Vice
President of the General Insurance Association
of Singapore between 2006 and 2012.
Michael also serves on the DirectAsia Board
as a Non Executive Director.
External board appointments
Partner Reinsurance Asia Pte Ltd; Steadfast
Distribution Services Pte Ltd; NCI Brokers (Asia)
Pte Ltd; Galaxy Insurance Consultants Pte Ltd;
Enya-Lea Pte Ltd; Werombi Pte Ltd.
Independent Non Executive Director
Thomas Hürlimann (Aged 57)
Appointed to the Board: November 2017
Relevant skills, experience and contribution
s Considerable experience of leading a
global business.
s Extensive knowledge of the European
insurance market.
Thomas has 30 years’ experience in banking,
reinsurance and insurance. He was CEO
Global Corporate at Zurich Insurance Group,
a $9 billion business working in over 200
countries. Prior to that, he held senior positions
at Swiss Re Group and National Westminster
Bank. Thomas also serves on the Hiscox SA
Board as a Non Executive Director.
External board appointments
None.
Independent Non Executive Director
Anne MacDonald (Aged 65)
Appointed to the Board: May 2015
Relevant skills, experience and contribution
s Extensive marketing expertise,
particularly in the USA.
s Sizable experience in developing
well-known global brands.
Anne has served as Chief Marketing Ofcer at
four Fortune 100 companies, and been in charge
of some of the most recognised brands in the
world, including Citigroup, Traveler’s, Macy’s
and Pepsi. Anne also serves as the Employee
Liaison for Hiscox.
External board appointments
Boot Barn Holdings, Inc.; Zeotap; Tuckerman
& Co.; Chops Snacks; IGNITE National;
Visiting Nurse & Hospice of Litcheld County.
Independent Non Executive Director
Constantinos Miranthis (Aged 57)
Appointed to the Board: November 2017
Relevant skills, experience and contribution
s Deep understanding of Bermuda’s
(re)insurance industry.
s Senior leadership experience in the
reinsurance sector.
Costas served as President and CEO of
PartnerRe Ltd, one of the world’s leading
reinsurers, until 2015 and prior to that was a
Principal of Tillinghast-Towers Perrin in London,
where he led its European non-life practice.
A trained actuary, he is a member of the UK
Institute and Faculty of Actuaries and a resident
of Bermuda. Costas also serves on the Hiscox
Insurance Company (Bermuda) Limited Board
as a Non Executive Director.
External board appointments
None.
Independent Non Executive Director
Lynn Pike (Aged 64)
Appointed to the Board: May 2015
Relevant skills, experience and contribution
s Strong background in the US nancial
services sector.
s Signicant knowledge of providing
commercial solutions for small
businesses, particularly in the USA.
Lynn worked in the US banking industry for
nearly four decades, most recently as President
of Capital One Bank. Before that, she was
President of Bank of America’s small business
banking division, a multi-billion-Dollar business
with 110,000 clients and over 2,000 employees.
Lynn also serves on the Hiscox Insurance
Company Inc. Board as a Non Executive
Director and is Chair of the Risk Committee.
External board appointments
American Express Company (NYSE: AXP);
American Express National Bank.
Group General Counsel
and Company Secretary
Marc Wetherhill (Aged 48)
Group General Counsel
and Company Secretary
Marc has signicant legal and
governance experience, and
is the Principal Representative
to the Bermuda Monetary
Authority for the Hiscox Group.
He previously served as
Chief Legal Counsel and
Chief Compliance Ofcer at
PartnerRe Ltd, having trained
as a solicitor in London, and is
a member of the Bermuda Bar.
Member of the Audit Committee
Member of the Nominations and
Governance Committee
Member of the Remuneration Committee
Member of the Risk Committee
Member of the Investment Committee
Chair of Committee is highlighted in solid.
54 Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Senior management
Attracting and retaining top talent is important to us, and
at a senior management level we have a diverse team whose
combination of experience and fresh-thinking provides
challenge and drives progress.
Amanda Brown
Chief Human Resources Ofcer
Joined Hiscox: October 2006
Relevant skills, experience and contribution
s Deep expertise in developing and
implementing HR strategy across
multiple geographies.
s Global compensation management
including executive compensation
policy and shareholder consultation.
Amanda leads our team of 90 HR professionals
around the world, overseeing our HR policies and
procedures, employee rewards and benets,
recruitment, learning and development, and our
approach to remuneration to ensure our continued
ability to attract and retain talent at all levels.
Stéphane Flaquet
Chief Executive Ofcer, Hiscox Europe
Joined Hiscox: March 2010
Relevant skills, experience and contribution
s Strong nancial services background.
s Sizable insurance industry
experience gained within a range
of European territories.
Stéphane originally joined Hiscox as Chief
Operating Ofcer for Europe, and has also
served as the Group’s Chief Information Ofcer
and latterly as Chief Executive Ofcer of Hiscox
Europe. In 2021, he will take on the newly created
role of Chief Transformation Ofcer, driving
critical change programmes including the
adoption of new technologies across the Group.
Grace Hanson
Chief Claims Ofcer
Joined Hiscox: January 2019
Relevant skills, experience and contribution
s Considerable legal expertise as a
qualied US lawyer.
s Proven track record of building robust
global claims functions for retail and
big-ticket lines.
Grace leads our award-winning team of 340
claims specialists across 19 locations – the
standard-bearers for Hiscox’s customer
promise. In 2021, she will kick-start our claims
transformation programme, building on strong
foundations through investments in technology,
analytics, and operational capability.
Hanna Kam
Group Chief Risk Ofcer
Joined Hiscox: February 2015
Relevant skills, experience and contribution
s Qualied actuary with in-depth enterprise
risk management and insurance expertise.
s International property and casualty
insurance industry experience gained
within corporate and consultancies
across the UK and Australia.
Hanna leads our global team of risk and
compliance experts, located in our key
geographies and jurisdictions. She has Group-
wide responsibility for Hiscox’s enterprise risk
management and regulatory compliance, and
manages our relationships with regulators.
Steve Langan
Chief Executive Ofcer, Hiscox USA
Joined Hiscox: October 2005
Relevant skills, experience and contribution
s Signicant global expertise in growing
retail businesses throughout the
insurance cycle.
s Extensive experience of brand-building
and marketing, particularly across
Europe and the USA.
Steve has held a number of senior roles
throughout Hiscox; Chief Marketing Ofcer for
the Group, CEO of Hiscox UK & Europe, and
CEO of the DirectAsia Group. In his current
role he is now focused on building our retail
business and recognised brand in the USA.
Paul Lawrence
Chief Underwriting Ofcer, Hiscox London
Market and Active Underwriter for Syndicate 33
Joined Hiscox: March 1992
Relevant skills, experience and contribution
s Deep expertise in big-ticket and specialty
insurance underwriting.
s Extensive experience of underwriting
throughout the insurance cycle.
Paul has underwritten a range of insurance lines
at Hiscox including ne art, personal accident,
specialty, and property insurance. He has also
worked through large loss events such as 9/11
in 2001 and Hurricanes Katrina, Rita and Wilma
in 2005 and has valuable experience of
underwriting in both hard and soft markets.
55Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Senior management
Kate Markham
Chief Executive Ofcer, Hiscox London Market
Joined Hiscox: June 2012
Relevant skills, experience and contribution
s Strong experience of building
customer-focused businesses.
s Track record of establishing
operational and digital infrastructures
that support growth.
Kate originally joined Hiscox to run our UK
Direct business, and was promoted to
Chief Executive Ofcer of Hiscox London
Market in 2017. She leads our team of 300
London Market underwriters, analysts and
support functions in the UK, Guernsey and
the USA.
James Millard
Chief Investment Ofcer
Joined Hiscox: January 2020
Relevant skills, experience and contribution
s Signicant investment
management expertise.
s Twenty years’ experience of
managing investment teams,
processes and portfolios.
James is responsible for the Group’s investment
portfolios, implementing overall investment
policy and directing all portfolio management,
research, trading and strategy. He leads our
small in-house team, overseeing asset allocation
along with the selection and monitoring of our
externally appointed asset managers.
Ian Penny
Chief Information Ofcer
Joined Hiscox: May 2017
Relevant skills, experience and contribution
s Deep expertise in IT strategy,
development, engineering, operations,
IT change and programme execution.
s Experience of designing platforms for
high-volume customer channels.
Ian leads the Group’s technology function,
overseeing a team of 700+ colleagues and
partners globally. His experience of designing
and safeguarding applications and infrastructure
in a regulated industry informs our work around
customer channels, software development,
automation, and information security.
Kathleen Reardon
Chief Executive Ofcer, Hiscox Re & ILS
Joined Hiscox: January 2021
Relevant skills, experience and contribution
s Extensive experience of building
reinsurance businesses throughout
the cycle.
s In-depth knowledge of the Bermuda
reinsurance market.
Kathleen joined Hiscox in 2021 from Hamilton
Re, where she was Chief Executive Ofcer.
She leads our reinsurance and ILS business,
based in London and Bermuda, and is
responsible for ensuring the team takes
advantage of the hardening market and
opportunities as they present themselves.
Bob Thaker
Chief Executive Ofcer, Hiscox UK
Joined Hiscox: February 2010
Relevant skills, experience and contribution
s Considerable experience of growing
retail insurance businesses, particularly
in Europe and Asia.
s Expertise in digital insurance distribution.
Bob originally joined Hiscox as Head of Group
Strategy and has held a range of roles since.
These include Group Chief Risk Ofcer, Head of
Claims for Hiscox UK and later, Hiscox Europe,
Group Chief Operating Ofcer for DirectAsia
– based in Singapore – and CEO of DirectAsia
Group before relocating back to the UK in 2019
as Hiscox UK’s Chief Executive Ofcer.
Ben Walter
Chief Executive Ofcer, Hiscox Retail
Joined Hiscox: March 2011
Relevant skills, experience and contribution
s Deep understanding of global retail and
digital insurance markets.
s Signicant experience leading business
transformation programmes.
Ben originally joined Hiscox as Chief Operating
Ofcer for Hiscox USA before serving as its
Chief Executive Ofcer for six years. He became
Chief Executive Ofcer for Hiscox Retail – with
responsibility for our Retail operations in the UK,
Europe, and the USA – in 2018, with a focus on
product innovation and growth, leveraging scale
and driving digitisation.
56 Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chairman’s letter to shareholders
Dear Shareholder
Each year, I talk to you about the continued evolution of our
governance structure as our business changes and grows,
and I am pleased that, despite Covid-19, 2020 saw us deliver
the same steady evolution. While Covid-19 was a dominant
discussion point for the Board during the year, and you will
nd Covid-19-related Board activity outlined in the table on
page 61, we have also continued to progress with important
activity including employee engagement and climate change.
Evolving governance structures
We have continued to evolve our governance framework
and underlying governance structures to meet the needs
of our growing business. This year we focused on rening
our approach to Board composition reviews as well as the
succession planning process for our Non Executive Directors.
This supports the established and robust succession
processes we have in place for Executive talent reviews.
Additional work was undertaken to ensure the Group
governance model is also reected in our largest subsidiary
boards. As a result, we have developed subsidiary-level
governance manuals and embedded a repeatable
process for updates to subsidiary board composition and
Non Executive Director succession planning which is in line
with the Group approach.
We continue to ensure our governance practices are in line
with the UK Corporate Governance Code (the Code) and
set out in detail how we have complied with the Code on
pages 63 to 67. This should be read in conjunction with
the corporate governance section on pages 57 to 62.
As with last year’s report, we have included some additional
disclosures beyond our reporting requirements, such as
our Chief Executive’s pay ratio, where we feel that doing
so would give shareholders a better understanding of our
governance structures.
Employee engagement and the Board
Last year I reported that, in light of the Code’s focus on
ensuring the views of the workforce have been considered
in Board discussions and decision-making, we had reviewed
the wide and varied, formal and informal engagement
mechanisms already in place and established a new
Employee Liaison role and employee engagement network.
In its rst year, this approach has yielded new insights and
ideas, and the Board is beneting from the information that
Anne MacDonald, as our Employee Liaison, is able to share.
More information on this is outlined on page 48.
Remuneration
Last year we made some changes to our remuneration policy to
rebalance the weighting of incentives towards the long term –
encouraging an ownership culture and increasing the focus on
long-term performance. We continue to evolve our approach,
and are proposing to introduce a second measure for the 2021
PSP awards to provide a broader view of our performance.
You can read more about this in the letter from the Chair of
the Remuneration Committee on pages 76 to 77.
Climate change
Addressing climate variability has always been a feature of our
business and in 2020 we are building on the foundations laid
through the Hiscox ESG framework with a Board-approved
responsible investment policy and ESG exclusions policy.
These policies support our pragmatic approach to ESG
issues and complement the Lloyd’s approach, published
in December, which as Lloyd’s participants we support.
2020 also saw the baton of responsibility for ESG pass from
Mike Krefta – who made an immense contribution to our
progress – to James Millard, our Chief Investment Ofcer and
new ESG Executive Sponsor for the Group.
Disclosure is almost as important as action when it comes to
ESG, and we completed additional disclosures this year which
are outlined on page 43. Our climate report, which generated
a 20-percentage-point increase in our ClimateWise score
year-on-year, ensures our alignment to the Task Force on
Climate-related Financial Disclosures (TCFD) and demonstrates
our readiness to meet the UK Government requirements for
mandatory TCFD-aligned climate reporting by the end of 2021.
I trust that the information set out in this report will give
you a strong understanding of our corporate governance
arrangements and assurance that Hiscox continues to be
focused on the importance of maintaining a robust corporate
governance framework.
Robert Childs
Chairman
57Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Board composition
The Board has responsibility for the overall leadership of the
Group and its culture.
The Board comprises the Non Executive Chairman, three
Executive Directors, and seven independent Non Executive
Directors including a Senior Independent Director. The
operations of the Board are underpinned by the collective
experience of the Directors and the diverse skills which they
bring. Biographical details for each member of the Board are
provided on pages 52 to 53. Notable changes during 2020
include Joanne Musselle, Group Chief Underwriting Ofcer,
being appointed to the Board in March 2020. In accordance
with the Company’s Bye-laws and the Code, all Directors will
seek re-appointment at the 2021 Annual General Meeting and
no issues have arisen that would prevent the Chairman from
recommending the re-appointment of any individual Director.
More information on the role of the Board can be found on
pages 52 to 53.
Leadership of the Company
The Board as a whole is collectively responsible for the success
of Hiscox Ltd and the Group.
The Hiscox Ltd Board of Directors:
s set the Group’s strategic direction, purpose and values
and align these with its culture;
s oversee competent and prudent management of internal
control, corporate governance and risk management;
s determine the sufciency of capital in light of the Group’s
risk prole and business plans; and
s approve the business plans and budgets.
Corporate governance
Our robust governance framework underpins our business
model and continues to serve us well, including during the
Covid-19 pandemic.
Director role responsibilities
To ensure that the Board operates efciently, each Director has role responsibilities. The role of the Chairman,
Senior Independent Director and Chief Executive are distinct to demonstrate the segregation of responsibilities.
Chairman Senior Independent Director (SID) Chief Executive
s Leadership of the Board.
s Ensuring effective relationships
exist between the Non Executive
and Executive Directors.
s Ensuring that the views of all
stakeholders are understood
and considered appropriately
in Board discussions.
s Overseeing the annual performance
evaluation and identifying any
action required.
s Leading initiatives to assess the
culture of the Company and ensure
that the Board leads by example.
s Advisor to the Chairman.
s Leading the Chairman’s
performance evaluation.
s Serving as an intermediary to other
Directors when necessary.
s Being available to shareholders and
other stakeholders if they have any
concerns which are unable to be
resolved through normal channels,
or if contact through these channels
is deemed inappropriate.
s Proposing and delivering the
strategy as set by the Board.
s Facilitating an effective link
between the business and
the Board in support of
effective communication.
s Leading the Executive Committee,
which delivers operational and
nancial performance.
s Representing Hiscox internally
and externally to stakeholders,
including shareholders, employees,
government and regulators,
suppliers and contractors.
58 Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Corporate governance
The Board has delegated a number of its responsibilities to its Audit, Nominations and Governance, Remuneration
and Risk Committees
Audit Committee Nominations and
Governance Committee
Remuneration Committee Risk Committee
s Advises the Board on
nancial reporting.
s Oversees the relationship
with internal and
external audit.
s Oversees internal
controls including
reserving and claims.
s Recommends Board
appointments.
s Succession planning.
s Ensures an appropriate
mix of skills and
experience on the Board.
s Promotes diversity.
s Manages any
potential conicts.
s Establishes
remuneration policy.
s Sets Chairman,
Executive Director and
senior management
remuneration.
s Oversees workforce
remuneration-related
policies and practices
across the Group.
s Oversees alignment
of rewards, incentives
and culture.
s Advises the Board on
the Group’s overall
risk appetite, tolerance
and strategy.
s Provides advice,
oversight and challenge
to embed and maintain
a supportive risk
culture throughout
the Group.
The Audit Committee report
can be found on pages
71 to 73.
The Nominations and
Governance Committee
report can be found on
pages 68 to 70.
The remuneration report can
be found on pages 80 to 93.
More information on risk
management can be found
on pages 12 and 36 to 39.
This structure is supported by the Executive Committee, Investment Committee and a number of other management committees.
Certain administrative matters have been delegated to a committee comprising of two Directors and the Company Secretary.
59Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Corporate governance
Corporate governance oversight
The Board operates within an established governance
structure to ensure that through the delegations, strategy
can be implemented effectively and this is supported by
transparent, well informed and balanced decision-making.
The Board’s terms of reference include a schedule of matters
reserved for Board decision, a copy of which can be found
at hiscoxgroup.com/investors/corporate-governance.
Each Board committee operates within established written
terms of reference and each committee Chairman reports
directly to the Board. The matters reserved for Board decision
and the committee terms of reference were further reviewed
in late 2020 as part of the annual review of terms of reference.
The Board is responsible for the success of the Company
and the underlying Hiscox Group of companies and as part
of this the Board sets the governance framework and the
overarching principles which should be applied across the
Group. The framework is supported by a formal governance
manual which explicitly sets out our corporate governance
standards. The Group governance manual sets out the
overall Group structures, the division of responsibilities
between Group and principal subsidiary boards, operational
requirements for the Board and the principles applied to
subsidiary management. The Group governance manual and
supporting subsidiary governance manual ensures that the
underlying processes throughout the Group follow consistent
and effective governance procedures.
Hiscox Group governance model
The Hiscox Group governance model shows the relationship
between the Board exercising strategic direction and
oversight of the Hiscox Group, and the subsidiary boards’
delivery of their respective entities.
Gender
Female 4
Male 7
Age
46-55 2
56-65 7
66-75 2
Location
USA 2
Bermuda 2
Europe 6
Asia 1
Tenure
0-3 years 4
3-6 years 4
6-8 years 1
8+ years 2
Board statistics
Board diversity at 3 March 2021
More information on our approach
to corporate governance, including
the Board and Committee terms
of reference can be found at
hiscoxgroup.com/investors/
corporate-governance
108
Read about our going concern
and viability statements in our
Directors’ report.
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Corporate governance
60 Hiscox Ltd Report and Accounts 2020
The model is divided into key themes, aligned to the division of
responsibilities, and translated into explicit terms of reference
for the principal subsidiaries – ensuring alignment to the overall
Group approach to values, purpose, culture of risk awareness,
ethical behaviour and Group controls.
The governance manual denes the Group-wide governance
standards required of all legal entities, and supports the
delivery of strategy and business objectives within a
framework of good corporate governance practice.
Board meetings and attendance in 2020
The Group has an effective Board which supports a culture
of accountability, transparency and openness. Executive
management and the Non Executive Directors continue to
work well together as a unitary Board and debate issues freely.
The Board culture is congenial; however, both Non Executive
Directors and Executive Directors continually challenge each
other in order to deliver our shared aim. In the context of unitary
Boards, Non Executive Directors provide Executive Directors
with support and guidance, not just challenge, and our Non
Executive Directors are close enough to the business to do this.
In line with the agreed meeting schedule, the Board held four
comprehensive meetings in 2020 (these meetings comprise
meetings of the Board and of each of the Committees of the
Board). There were additional Board meetings which covered
specic topics such as the approval of May’s capital raise, the
Company’s response to Covid-19 and the insurance industry
test case. During an unprecedented and rapidly evolving
period, we also held an additional 17 informational calls
between Board meetings. These informational calls provided
an opportunity to ensure the Board was kept informed of any
business developments and allowed the Directors to monitor
exposures, emerging issues and opportunities.
The Company’s Bye-laws prohibit any Director who is in the
UK or the USA from counting towards the quorum necessary
for the transaction of business at a Board meeting. This
restricts the ability of the Company’s Directors based in the
UK or USA to participate in Board meetings by telephone or
other electronic means. Although the Company’s February
2020 Board and Committee meetings were held in-person in
Bermuda as scheduled, from March 2020, in-person Board
activity was signicantly disrupted due to government imposed
Covid-19-related travel restrictions and guidance. As a result, it
was not possible in many instances for our UK- and USA-based
Directors to travel to Bermuda or join the meetings as a result
of restrictions on international travel and the airport in Bermuda
being closed for periods of time. In light of this, the Board
held an additional 17 informational calls which allowed for the
continued sharing of information and ensured that all Directors
had an opportunity to be apprised of all Board issues, even
when, through no fault of their own, they were not able to attend
the comprehensive Board meetings in person or, as a result of
the prohibition in the Bye-laws, by telephone.
All Directors were able to full their duciary responsibilities
during 2020 and attended all Board and Committee meetings
that they were eligible to attend (that is, those Board and
Committee meetings that they were not precluded from
attending as a result of Covid-19-related travel restrictions and
guidance, and the Company’s Bye-laws). With respect to the
four comprehensive Board meetings in 2020, the Directors
attendance (and the number of meetings that they were eligible
to attend) is as follows: Caroline Foulger, Michael Goodwin,
Thomas Hürlimann, Costas Miranthis (4/4); Robert Childs;
Aki Hussain; Bronek Masojada; Joanne Musselle (3/3); Colin
Keogh (2/2); Anne MacDonald, Lynn Pike (1/1). Joanne Musselle
was appointed to the Board in March 2020 and, although not
required, attended the February 2020 Board meeting.
There were also four meetings of each of the Committees of
the Board during 2020. All of the Company’s Non Executive
Directors are members of each of the Audit Committee,
Nominations and Governance Committee, Remuneration
Committee, Risk Committee and Investment Committee
and their attendance (and the number of meetings that
they were eligible to attend) is as follows: Caroline Foulger,
Michael Goodwin, Thomas Hürlimann, Costas Miranthis (4/4);
Colin Keogh (2/2); Anne MacDonald, Lynn Pike (1/1).
Robert Childs is a member of the Nominations and Governance
Committee, Risk Committee and Investment Committee and
he attended all three of the meetings that he was eligible to
attend. Aki Hussain, Bronek Masojada and Joanne Musselle
are members of the Investment Committee and attended all
three meetings that they were eligible to attend.
All Directors intend to attend future Board and Committee
meetings in person when circumstances allow.
Outside of the formal Board and Committee meetings and
informational calls, Non Executive Directors have unfettered
access to employees at all levels of the business, regularly
An alert service is available on
hiscoxgroup.com to notify any
stakeholder of new stock
exchange announcements.
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Corporate governance
61Hiscox Ltd Report and Accounts 2020
“I have been very pleased with how
our governance processes have stood
up to the exceptional challenges that
presented themselves in 2020. They have
proven to be robust and effective. We
made use of technology and additional
informational sessions to ensure that we
were not only able to understand how
the challenges were impacting Hiscox,
but were also able to contribute to the
process by sharing thoughts and ideas.”
Colin Keogh
Senior Independent Director
Board activity and key themes
The Board receives appropriate and timely information to enable Directors to review business strategy, trading performance,
business risks and opportunities. Executive Directors and senior management from the business are invited to present
on key items, allowing the Board the opportunity to debate and challenge initiatives directly with Executive Directors and
senior managers. Naturally, the impact of Covid-19 was a dominant feature in much of the Board’s discussion in 2020.
Key themes in 2020 Key activities and actions
Strategy, culture and
business performance
s Approval of the 2021 business plan.
s Agreement on business priorities and review of these within the context of Covid-19.
s Oversight of work on the development of a robust and open culture. Ongoing monitoring
and assessment of culture has been an area of focus for 2020, thanks to the piloting
of a number of ‘culture dashboards’ within some of the subsidiary Boards, as detailed
on page 48.
s Continued review of the strategy development.
Engagement
s Board members met throughout the year with the Group regulator, the Bermuda Monetary
Authority, in addition to key regulators in the principle subsidiaries, as part of an ongoing
focus on cultivating open and transparent relationships with all key regulators.
s The Board regularly considered the Group’s relationship with various stakeholder groups.
It discussed shareholder matters, employee engagement, customers, and the Group’s
impact on, and relationship with, wider society as detailed on pages 40 to 41 and 46 to 47.
s The Board received regular updates on workforce engagement, via the Employee Liaison
role (Anne MacDonald, Non Executive Director). Further details can be found on page 48.
Governance
s Approval of nancial measures taken as a result of Covid-19 including: withdrawal of the
2019 nal dividend, the 2020 interim dividend payment and 2020 share buybacks; the
purchase of more than $100 million of additional catastrophe reinsurance in the form of
industry loss warranties; and a £375 million equity raise.
s Appointment of the external facilitator for the 2020 Board evaluation and discussion of the
outcomes of the Board evaluation review. Further details can be found on pages 68 to 70.
s Approval of the Hiscox Responsible Investment Policy, the ESG exclusions policy and
ongoing engagement with the ESG framework.
Risk, compliance and
internal controls
s Oversight of all key risk, compliance, internal control and governance matters as detailed
in the Audit Committee report on pages 71 to 73 and in the risk management section on
pages 36 to 39.
s Review of the changed control environment in the move to remote working due to Covid-19,
which was found to be satisfactory.
s Updates on key underwriting exposures (Hiscox view of risk), taking into account Covid-19.
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Corporate governance
62 Hiscox Ltd Report and Accounts 2020
liaise with management on activities aligned to their key skills,
and attend appropriate management strategy and training
events. They also have the opportunity to attend briengs with
Executive Committee members and senior management, to
understand key issues and conduct ‘deep dives’ on specialist
subjects. In 2020, among other things, this included: marketing
and branding; strategic assessment; workforce engagement;
and digitisation. Specic sessions are held for succession
planning and strategy.
Board evaluation 2020
The externally facilitated Board evaluation in 2020 was
facilitated by Lintstock, further details of which can be found
in the Nominations and Governance Committee report on
pages 68 to 70.
Board agenda planning in action
The Board agenda is set by the Chairman following discussion
with the Chief Executive and Company Secretary, taking
into consideration feedback from the individual Directors.
Board agendas focus on strategically important issues and
regular reports from key business areas.
Board papers are circulated in advance of each meeting to
ensure Directors have appropriate time to review them, and
to seek clarication where necessary. The quality of Board
papers is kept under regular review.
The scheduled meetings follow an agreed format; agendas
are developed from the Board’s annual plan of business, with
exibility built in to ensure the agendas can accommodate
relevant upcoming issues.
The Chairman and Non Executive Directors usually meet at
the start or end of each Board meeting without the Executive
Directors, creating an opportunity for Non Executive Directors
to raise any issues privately.
Each agenda is typically divided between special strategy
items (‘deep dives’), and management reports. Deep dive
sessions are selected for a variety of reasons, including
identied actions from previous meetings, issues escalated
from management, and items requested either formally or
informally by Non Executive Directors. Any issues highlighted
will be addressed either at the Board, during Committee
discussions, or during informal informational sessions,
depending on the nature of the matter. The management
reports follow a short standard format which aids discussion
and understanding. At each meeting the Board receives an
update from the Committee Chairs to keep them abreast of
the items discussed, the outcomes agreed, and to summarise
recommendations for Board approval from the Committees.
Board agendas are also set out in line with the Committee
agenda setting to ensure that the most appropriate method of
progressing an item is utilised.
The agenda planner was refreshed during the year to
ensure it covered the appropriate strategy, performance
and governance items. The agenda planning also includes
the review of external inuences on the Board including
ongoing regulatory review throughout the Group.
Director duties
As a company incorporated under the laws of Bermuda,
Hiscox complies with the Bermuda Company Law and as
such the UK Companies Act 2006 and associated reporting
regulations do not apply. Although there is no prescription of
statutory duties in Bermuda, Directors are bound by duciary
duties to the Company and statutory duties of skill and
care. This includes exercising care, diligence, and skill that
a reasonably prudent person would be expected to exercise
in comparable circumstance. The Directors act in a way
that they consider in good faith would be most likely to
promote the success of the company for the benet of its
members as a whole.
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
Chapter 1 3
A balanced business
Chapter 3 51
Governance
63Hiscox Ltd Report and Accounts 2020
Compliance with the UK Corporate Governance Code 2018
As a company listed on the London Stock Exchange, the UK
Corporate Governance Code (the Code) is applicable to Hiscox.
The Code sets out a set of ‘comply or explain’ provisions.
This section, along with the corporate governance section
on pages 57 to 62, provides meaningful disclosure on our
application of the principles of each section of the Code
in turn, and explains the rationale for any deviation from
its provisions. A copy of the Code is available at frc.org.uk.
Section 1 of the Code:
Board leadership and Company purpose
The Board is collectively responsible for the stewardship and
long-term success of the Company and for setting the strategic
direction for the Group. In the corporate governance section
on pages 57 to 62, we have set out the governance structure
which supports the Board in setting and overseeing the delivery
of the Company’s strategy. We have also described some of the
key decisions taken by the Board during the year and how the
Board’s view of emerging risks inuenced those decisions to
ensure the focus remains on delivering long-term, sustainable,
good performance.
Purpose and values have always been important at Hiscox,
and the Board reviews and renes them every ve or so
years to ensure they remain relevant as the business
evolves, with the last comprehensive review undertaken
in 2019. The Board believes that the Company’s purpose
and values act as a barometer by which the Board and
the wider workforce can hold each other to account.
For more information on our purpose and values see page 8.
The Board operates within a Group-wide governance framework
which was also explicitly set out in a Board-approved governance
manual during 2019. The governance framework complements
the Company’s internal controls which are designed to enable
risk to be properly assessed and managed. To support this,
the Board has a formal schedule of matters reserved for the
Board’s determination that covers areas including: setting the
Group’s purpose and strategic vision; monitoring performance
of the delivery of the strategy; approving major investments,
acquisitions and divestments; risk oversight and setting the
Group’s risk appetite; and reviewing the Group’s governance.
The Company’s terms of reference explicitly state that the Board
and its Committees shall have unfettered access to the resources
they determine as being necessary to full their obligations.
The Board is ultimately responsible for our risk management
and internal controls, and for ensuring that the systems in
place are robust and take into account the principal and
emerging risks faced by the Company. The Board delegates
certain matters to the Risk Committee, whose work is
outlined on pages 37 to 38, and the Audit Committee, whose
work is outlined on pages 71 to 73. The Committees provide
updates to the Board on matters discussed at each meeting.
The Board is kept aware of major shareholder issues and
concerns through reports from a variety of sources, including
the Chairman, Chief Executive, Chief Financial Ofcer, senior
management and external consultants. Other ways in which
the Board maintains dialogue with shareholders include
general meetings, investor roadshows and interim and full-year
results presentations, ensuring shareholder engagement is
not limited to the period following the publication of nancial
results or other signicant announcements. Dialogue with
shareholders has adapted throughout the period to respond to
communicating remotely where needed.
In 2019, the Company formalised its approach to workforce
engagement by establishing an Employee Engagement
Network, which is led by Non Executive Director Anne
MacDonald, who also now holds the role of Employee Liaison.
The Board continues to engage with the workforce through
both the pre-existing infrastructure and via the employee
engagement network, to ensure that Hiscox is motivating and
engaging employees in an effective way. The Employee Liaison
is responsible for providing a summary of ndings at Board
meetings, and more information on the work of the employee
engagement network during 2020 can be found on page 48.
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 2020 results can be found on page 46.
The Board, at least quarterly, assesses and monitors culture
via a culture dashboard; wide metrics are used to ensure
that the Board can have oversight of any issues and seek
corrective action where it is not satised that policy, practices
or behaviour throughout the business are aligned with the
Company’s purpose, values and strategy. More information
on the culture dashboards can be found on page 48.
Diversity and inclusion remains as important as ever to our
business, and we have policies and processes to ensure there
is a balanced workforce and an appropriately diverse pipeline.
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Compliance with the UK
Corporate Governance
Code 2018
64 Hiscox Ltd Report and Accounts 2020
Section 2 of the Code:
Division of responsibilities
The Chairman is responsible for the leadership and overall
effectiveness of the Board. He recognises the importance of
creating a boardroom culture which encourages openness
and debate and ensures constructive relations between
Executive and Non Executive Directors. There is a clear division
of responsibilities between the Chairman, Chief Executive and
Senior Independent Director to ensure that no individual has
unfettered powers of decision, which is outlined on page 57.
The Non Executive Directors provide constructive challenge
and help develop proposals on strategy. They are also
responsible for scrutinising management performance and
ensuring that nancial information, risks and controls, and
systems of risk management are robust. The Board ensures,
through the Nominations and Governance Committee, that
Board composition is kept under review, that appropriate
succession plans are in place, that the independence of
Non Executive Directors is not compromised and that they
have the time and resources necessary to devote to the role.
The Remuneration Committee ensures that appropriate
remuneration structures are in place on behalf of the Board,
more information of which is outlined on pages 76 to 105.
Colin Keogh, the Senior Independent Director, provides
a sounding board for the Chairman and serves as
intermediary for other Directors when necessary.
His other role responsibilities are outlined on page 57.
The General Counsel and Company Secretary acts as
a trusted adviser 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.
Data from Lloyd’s of London shows that our efforts in gender
diversity planning have delivered above market gender ratios
and we continue to evolve our efforts, with a specic focus on
improving our ethnic diversity.
The Company’s whistleblowing policy ensure that employees
feel empowered to raise concerns in condence and without
fear of unfair treatment. The structures and processes in place
allows for the proportionate and independent investigation of
any such matters, and for appropriate follow up action to be
taken where necessary. The Board and the Audit Committee
– whose Chair also who serves as the Group’s whistleblowing
champion – has oversight of whistleblowing and routinely
receives reports arising from its operation.
Each year, the Directors are required to provide a complete
list of all third-party relationships that they maintain. This is
analysed to determine if there is any actual or potential conict
of interest. The Nominations and Governance Committee
review the ndings and determine if there is any conict of
interest. With respect to 2020, the Committee determined that
there are no conicts which could cause an actual or potential
conict, and additionally there are no concerns regarding
overboarding by Directors with adequate time available by all
to carry out their duties.
Where Directors took on additional Board positions during the
year, these were reviewed as part of our corporate governance
processes and were not deemed to be signicant to the extent
that they would overburden Directors’ time. There is no issue
with the time commitments or availability of these Directors; this
has been demonstrated throughout 2020 where all Directors
have given additional time to the Company due to increased
meetings regarding the pandemic response.
Hiscox’s response to section 1 of the Code
The Board has complied with all of the applicable provisions
of section 1. Provision 5 states that, in the context of how
the Board understands the view of key stakeholders, the
Board should describe in the Annual Report how the matters
set out in section 172 of the Companies Act 2006 have been
considered in Board discussions and decision-making.
Section 172 applies only to companies incorporated in the
UK, therefore as a Bermuda-incorporated company the
Board is not subject to section 172 statutory duties.
Nevertheless, where appropriate the Board as a matter of
good governance has set out how we deliver comparable
Director duties against the Bermuda Companies Act 1981.
More information on Director duties can be found on pages
108 to 110, while stakeholder engagement is covered on
pages 40 to 41 and ESG on pages 42 to 49.
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Compliance with the UK
Corporate Governance
Code 2018
65Hiscox Ltd Report and Accounts 2020
Hiscox’s response to section 2 of the Code
The Company complied with all of the provisions of section 2
with the exception of Provision 9. As previously disclosed, the
Chairman, Robert Childs, was not deemed to be independent
upon his appointment as Chairman in 2013.
At that time, major shareholders were consulted ahead of
Robert’s appointment and the Board set out its reasons for
his appointment.
The Board continues to believe that the Chairman’s experience
and expertise in underwriting and risk management remain
a valuable asset in the performance of its functions. In 2019,
following the introduction of the new provision of the Code,
a more robust annual process was introduced which allows
the question of the Chairman’s tenure on the Board to be
discussed by the Non Executive Directors (without the
Chairman being present). This meeting happened in November
2020 and the meeting concluded, having taken soundings
from all other Directors on the Board, that the Board continues
to highly value the Chairman’s skills and experience, and that
he demonstrates independence, constructive challenge and
engagement in the Board as well as valuable guidance to
Executive management. The Board is therefore satised that
the Chairman continues to show the independence of character
and judgement necessary to chair the Board effectively.
Separately, there are a number of further measures to
ensure the robustness of these arrangements. There is
a strong Senior Independent Director in place; an annual
review of independence of mind as part of the effectiveness
review, and oversight of this at the Nominations and
Governance Committee; the Chairman is not a member of
the Remuneration Committee or the Audit Committee; and
a majority of Board Directors are independent Directors.
A key focus of the 2020 externally facilitated Board evaluation
was an assessment of the independence of the Board, the
role of the Chairman and the robustness of the Non Executive
Director succession plan; the results of which were positive
and are detailed on pages 68 to 70.
The Board therefore retains complete condence in the
Chairman’s ability to act independently, and unanimously
supports his re-election at the Annual General Meeting (AGM).
Section 3 of the Code:
Composition, succession and evaluation
The current composition of the Board is set out on pages
52 to 53 and is considered to be an appropriate size
for the business, with the right balance of Executive and
Non Executive Directors. The Board is satised that it has
the appropriate balance of skills, experience, independence,
and knowledge of the Company to enable it to discharge
its duties and responsibilities effectively, and that no
individual or group dominates the Board’s decision-making.
Any changes to the Board during the period are outlined
on page 57.
Diversity of thought, which is vital at every level of the
business including at Board level, remains vital and we are
guided by both our diversity and inclusion policy and our
Board diversity statement, which are available to view at
hiscoxgroup.com/about-hiscox/group-policies-and-
disclosures. Details of our diversity activities are detailed
on pages 46 to 47 and 70.
The Nominations and Governance Committee also
assesses the independence of each Non Executive Director,
taking into account, among other things, the circumstances
set out in the Code that are likely to impair, or could appear to
impair, their independence. The Committee remains of the
view that the most important factor is the extent to which
they are independent of mind. All Non Executive Directors,
other than the Chairman, were considered to be independent
when appointed to the Board, and the Nominations and
Governance Committee has determined that they all
continued to be independent in 2020. In line with good
governance practice, a particularly rigorous independence
review was conducted for Caroline Foulger as she has served
on the Board for more than six years, and concluded that
she continues to demonstrate independence. The Board
approved that Caroline Foulger could continue in ofce until
May 2022, to allow for the completion of the 2021 nancial
statement process, as at this point Caroline continues to
be independent.
The Nominations and Governance Committee plays a vital
part in ensuring a formal, rigorous and transparent procedure
for the appointment of new Directors and is responsible for
Board succession planning, regularly assessing the balance
of skills, experience, diversity and capacity required to
oversee the delivery of the Company’s strategy.
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Compliance with the UK
Corporate Governance
Code 2018
66 Hiscox Ltd Report and Accounts 2020
More information can be found in the Nominations and
Governance Committee report on pages 68 to 70.
Each Non Executive Director’s letter of appointment
outlines the commitments expected of them throughout
the year. Each Director has undertaken to allocate
sufcient time to the Group in order to discharge their
responsibilities effectively, and this is kept under review
by the Nominations and Governance Committee.
Executive Directors are prohibited from taking more than
one Non Executive Directorship in a FTSE 100 company,
or the Chairmanship of such a company. Information
on Board members’ other appointments are listed on
pages 52 to 53.
On joining the Board, all Non Executive Directors take
part in a full, formal induction programme which is
tailored to their specic requirements. Board members
can also participate in training and development
opportunities throughout the year. These typically include
visits to Hiscox ofces, specic sessions on key business
areas and upcoming developments, and inclusion at
the annual Hiscox Partners event, attended by those
employees who make signicant contributions to the
development and protability of the Group, and which
this year took place as an online event. These visits
provide an opportunity to meet employees and
other key stakeholders, and to develop a deeper
understanding of the challenges and opportunities
at operational sites and in the business areas more
generally. The Chairman holds annual appraisal
meetings with all Directors to review their performance,
and to discuss their training and development needs.
The Board also enjoys a full programme of informal
meetings that support the Board meetings; this helps
to ensure that the Non Executive Directors in particular
have wide access to all levels of the business. A number
of Non Executive Directors also serve on the subsidiary
boards of the major insurance carriers in the Group, which
serves as an additional control with respect to subsidiary
oversight of the Group.
All Directors stand for re-election by shareholders each
year at the AGM. The Board considers that all Directors
continue to perform effectively and demonstrate
appropriate levels of commitment. The biographical
details of the Board on pages 52 to 53 summarise each
Director’s relevant skills and experience as well as the
specic reasons why each Director’s contribution is
important to the Company’s long-term sustainable
success. As recommended by the Code, this
information will also be included in the Notice of Annual
General Meeting.
A Director, Board and Committee effectiveness evaluation
is carried out each year and results in effectiveness
reviews, which are discussed by the Board and each of the
Committees. The Nominations and Governance Committee
was central to these reviews. Every third year, the Board
evaluation is externally facilitated and this was the case in
2020. The external evaluation conrmed a strong, positive
dynamic which fosters constructive discussion and
decision-making. More information on the ndings can
be found in the Nominations and Governance Committee
report on pages 68 to 70.
Hiscox’s response to section 4 of the Code
The Company complied with all of the provisions of section 4.
Hiscox’s response to section 3 of the Code
The Company complied with all of the provisions of section 3
with the exception of Provision 19. The Chairman has been
in post since 2013, and has served less than nine years as
Chair, however, the Chairman has served as a Director prior
to that and continues in that post for reasons outlined in
Hiscox’s response to section 2 of the Code.
Section 4 of the Code:
Audit, risk and internal control
A key part of the Audit Committee’s and Risk Committee’s
responsibilities is to provide oversight, on behalf of the
Board, of the Company’s internal nancial controls, control
and risk management systems, and to monitor the integrity
of the nancial statements of the Company. A report from
Caroline Foulger, Chair of the Audit Committee, on the
work of the Committee during the year can be found on
pages 71 to 73. The risk management framework is set out
on page 36.
The Board is responsible for the preparation of the Annual
Report and Accounts and for stating whether it considers
the Annual Report and Accounts, taken as a whole, to be fair,
balanced and understandable, and to provide the information
necessary for shareholders to assess the Company’s
position, performance, business model and strategy.
The Directors’ responsibilities statement, going concern
and viability statements are set out on pages 108 to 111.
Hiscox’s response to section 5 of the Code
The Company complied with all of the provisions of section 5.
Section 5 of the Code:
Remuneration
The remuneration policy is developed by the Remuneration
Committee in consultation with shareholders and is designed
to support the Company’s strategic aims and promote the
long-term sustainable success of the Company while also
being aligned with the Company’s purpose, values and culture.
The remuneration policy was reviewed in 2019 ahead of its
renewal in May 2020. The Code stipulates the importance
of clarity, simplicity, risk, predictability, proportionality and
alignment to culture in remuneration, and how we address
this for Hiscox is outlined in the table on the opposite page.
The remuneration report also contains details of the procedure
that has been established for developing the Company’s
policy on Executive pay and determining Director and senior
management remuneration outcomes. No Director is involved
in deciding their own remuneration.
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Compliance with the UK
Corporate Governance
Code 2018
67Hiscox Ltd Report and Accounts 2020
How we have addressed the following factors in the UK Corporate Governance Code 2018
Factor Consideration of how this is addressed for Hiscox
Clarity – remuneration
arrangements should be
transparent and promote
effective engagement
with shareholders and
the workforce.
s Shareholders’ views on the key changes to the policy are sought.
s Although the Committee did not consult directly with the broader workforce on Executive
Directors’ remuneration policy, there is a process by which employees’ views are gathered
on a range of topics and reected in Board discussion. The Remuneration Committee also
receives information on broader workforce remuneration policies and practices during the
year which informs its consideration of the policy for Executive Directors.
Simplicity – remuneration
structures should avoid
complexity and their rationale
and operation should be easy
to understand.
s Hiscox’s remuneration framework is simple, comprising three main elements:
i) xed pay (base salary, benets and pension);
ii) annual bonus; and
iii) performance share awards.
s The remuneration philosophy is a simple one: to reward performance. For over a decade,
the foundation of the Group’s remuneration strategy has been the belief that the best way
to foster a high-performance culture across the Group is to ensure that pay reects our
results, not just effort.
s The remuneration policy’s operation, including form of awards, time horizons, and
performance measures, is designed to avoid complexity and is fully disclosed in the
Directors’ remuneration report on page 80.
Risk – remuneration
arrangements should ensure
reputational and other risks
from excessive rewards, and
behavioural risks that can
arise from target-based
incentive plans, are identied
and mitigated.
s Incentive awards are capped and are not considered excessive.
s Executive Directors’ annual bonus awards are judgement-based to ensure they reect
their overall performance rather than being measured according to a formulaic outcome.
Risk is also taken into consideration as part of this.
s The Committee has the ability to apply independent judgement to ensure that the vesting
outcome of performance share awards is a fair reection of both the Company’s performance
and that of the individual over that period.
s Part of the annual bonus is subject to deferral, and share awards are subject to a holding
period following vesting. Deferred bonus and share grants are subject to malus
and clawback.
Predictability – the range of
possible values of rewards
to individual Directors and
any other limits or discretions
should be identied and
explained at the time of
approving the policy.
s The range of possible values are set out in the performance scenario charts in the
remuneration policy on page 104.
s Limits and ability to exercise discretion are also set out in the policy.
Proportionality – the link
between individual awards,
the delivery of strategy and
the long-term performance of
the Company should be clear.
Outcomes should not reward
poor performance.
s Historic variable incentive pay-outs have had a strong link to the Company’s actual
performance. There is a track record of payment for performance, with evidence of zero
bonuses where ROE performance has been below the predetermined hurdle.
Alignment to culture –
incentive schemes should
drive behaviours consistent
with Company purpose,
values and strategy.
s The variable incentive schemes, including quantum, time horizons, form of award and
performance measures are all designed with the Company’s purpose, values and strategy
in mind.
s The pay arrangements for the Executive Directors are aligned with those of the broader
workforce and senior team.
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
Chapter 1 3
A balanced business
Chapter 3 51
Governance
68 Hiscox Ltd Report and Accounts 2020
Nominations and Governance Committee report
The work of the Nominations and Governance Committee is
wide-ranging, with a specic focus on the appointment and
succession of Directors and Executive management, the
Board evaluation, and Company strategy relating to diversity
and inclusion and the gender balance of both the Board and
senior management. The Nominations and Governance
Committee also carries out several other Group activities,
including a review of governance compliance, a review of
conicts and the approval of Group policies. The Committee
is comprised of eight members (seven independent
Non Executive Directors). The Chair of the Board is also
Chair of the Nominations and Governance Committee.
Board structure – appointment and succession
The Nominations and Governance Committee leads in the
delivery of formal, rigorous and transparent procedures on
appointments and succession, ensuring the development
of a diverse pipeline of Board members and senior managers.
This includes an annual review of succession plans for
Executives and Non Executives, a process which is guided
by the appointment and succession principles set out in the
Group governance manual, and which was again carried out
in 2020 across the Group.
As part of the Board succession planning process, the
Nominations and Governance Committee reviewed the
composition of the Board in 2020. This included a skills and
experience review – encompassing independence, length of
service, the balance of skills and experience, diversity, and the
capacity required to oversee the delivery of the Company’s
strategy – and Board succession planning on an immediate and
longer-term basis for the Chair and all members of the Board. As
part of this Board review, an appointment process was initiated
for the replacement of Caroline Foulger as Director and Chair
of the Audit Committee. Caroline’s nine-year term completes
in January 2022. However, the Nominations and Governance
Committee approved that Caroline could continue in ofce until
May 2022 so that the nancial cycle may be completed prior
to the formal handover, as changing the Audit Chair mid-cycle
could be detrimental to the process. The recruitment process
for an Audit Committee Chair has been initiated, and the
selection of an external search company is in progress.
The Nominations and Governance Committee also leads on
Executive succession planning. There is an established and
robust process which reviews the key talent plans throughout
the Group across three time horizons; zero-to-two years,
two-to-ve years and the watch list. The Group talent review
is assessed by the Nominations and Governance Committee
annually and fed into senior management performance
development plans. This process is replicated at a business
unit level to ensure they too have a sufcient pipeline of talent.
Talent plans are also reviewed when vacancies arise; for
example, in 2019, Joanne Musselle was identied as part of the
talent plan for her predecessor and, following an open market
exercise, was appointed as Group Chief Underwriting Ofcer.
Board evaluation
The Board and its Committees have a culture of continuous
improvement and as part of this undertake a formal and
rigorous annual evaluation of Board and Committee
performance; the results of which help to inform appropriate
action and development. Board and Committee effectiveness
evaluations are carried out each year and the results are
reviewed and discussed at the Board and each of the
Committees. Every third year, the Board evaluation is
undertaken by an external evaluator, as was the case in 2020.
2020 external Board effectiveness review
A market review of third-party Board evaluation providers was
carried out in early 2020, with Lintstock selected as the external
Board evaluation facilitator for 2020. Lintstock is conrmed as
independent; it provides no other services to the Company,
and has no other connection with the Company or individual
Directors, aside from having carried out the external Board
effectiveness review in 2017 and the internal review in 2018.
Lintstock engaged with key project sponsors to set the context
for the evaluation and carried out the review in the fourth quarter
of 2020 with a formal report to the Board in early 2021. All
Board members were invited to complete a survey addressing
the performance of the Board, the Chair and each of the
committees, after which each of the Directors were interviewed
by Lintstock representatives. The anonymity of the respondents
was ensured throughout the process in order to promote an
open and frank exchange of views. The key areas highlighted
in the scope of the review included Lintstock’s assessment of
the independence of the Board, the role of the Chair, and the
robustness of Non Executive Director succession plans.
2020 outcomes
Lintstock presented the ndings of their review, conrming
that the ndings were positive on the whole. 2020 has been
a challenging year for all organisations but the fact that the
Board has maintained a strong, positive dynamic that fosters
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Nominations and
Governance
Committee report
69Hiscox Ltd Report and Accounts 2020
Stage 5
Action plan
agreed
Action plan
overseen to
completion.
*Stages 2 to 4 were delivered as part of the external Board evaluation for 2020.
The Board evaluation process: assessing Board, Committee Chair and individual Director performance*
Stage 3*
Board review
Detailed
questionnaire
completed
to assess the
effectiveness
of the Board.
Stage 2*
Committee review
Detailed questionnaire
completed to assess
the effectiveness of
the Committees.
Stage 1
Director review
One-to-one interviews
between the Chairman and
the Directors to assess
Director effectiveness.
Senior Independent
Director meets with the
Non Executive Directors
to assess the effectiveness
of the Chairman.
Stage 4*
Outputs shared
Results
presented and
discussed at
Board and
Committee
meetings.
constructive discussion and decision-making was highlighted
as being particularly noteworthy. The review was weighted
towards a few particular themes, including:
s the independence of the Board, as currently composed,
which was deemed satisfactory;
s the role of the Chair, who was seen to have demonstrated
strong leadership over the past year; and
s the robustness of Non Executive Director succession
plans, which continue to be given active consideration
and are the subject of ongoing discussion as a part of
the usual process of Director rotation.
The review included a number of key priorities for the
Board to consider during the coming year, alongside a
schedule of detailed recommendations to assist with the
formulation of a robust action plan. As a result of the exercise,
the Board agreed to focus on the following actions:
s maintaining its focus on the succession of Executive
Directors and other key leadership positions below
the Board;
s transitioning back to in-person meetings when
Covid-19-related restrictions reduce, while retaining the use
of video-conferencing for interim Board calls and updates;
s driving accountability and excellence in execution,
including in the continued monitoring of progress against
the Company’s business priorities and key projects;
s continuing discussions on strategy, including business
mix and capital allocation;
s devoting more time to considering changes in the
external environment and their impact on Hiscox,
including competitor activity in key markets; and
s maintaining its focus on talent management, employee
engagement and the retention of high performers.
All Directors were fully engaged with the Board evaluation
process. The Board welcomed the review’s ndings with
the actions above feeding directly into ongoing succession
planning discussions. The Chair is leading the implementation
of these actions and will report on their delivery in the 2021
Annual Report and Accounts.
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Nominations and
Governance
Committee report
70 Hiscox Ltd Report and Accounts 2020
Individual Director reviews
Individual Director reviews are an opportunity to discuss
individual skills, training requirements, succession and any
other issues. No signicant issues were raised in 2020.
However, the Nominations and Governance Committee
will continue to review the overall skills, succession and
rotation of Directors.
Review of the prior year outcomes
In 2019, our internal annual evaluation of Board and
Committee performance was updated to deliver an even
more robust evaluation of Board, Committee Chair and
individual Director performance. As part of this, the Committee
reviewed the action plan to completion. Overall the prior year’s
Board and Committee effectiveness was rated as good or
extremely good with no fundamental issues highlighted. The
following themes of improvement were progressed throughout
the year: additional development of strategy with a focus
on competitor analysis; revised plans for focusing deeper in
the organisation; continued engagement with management
information to deliver better Board oversight; further review
of the remuneration policy (see page 94); and enhancing the
Executive succession planning process with an explicit Board
and Non Executive Director succession planning process.
Diversity and inclusion
Diversity and inclusion (D&I) has been a strategic priority for a
number of years and remains important to us. We have a Head
of Diversity and Inclusion and a D&I Executive Sponsor for the
Group who together drive our progress, a diversity and inclusion
policy that applies to all employees, and a Board diversity
statement that applies to our Executive and Non Executive
Directors. Our Board diversity statement, which is available
on our corporate website, reects the ethos of the Company
in that opportunity should be limited only by an individual’s
ability and drive. Our Board diversity statement focuses on
key requirements for appointments; it is also central to the
preparation of Board appointments via the Board succession
planning process which monitors skills, knowledge and
experience in additional to diversity (both gender and ethnicity).
In 2020, we complied with the provisions of the
Hampton-Alexander Review, which set a minimum target
for FTSE 350 companies to achieve 33% representation of
women on FTSE 350 boards and in the two layers of leadership
below the Board (the Executive Committee and the direct
reports to the Executive Committee) by the end of 2020.
Gender diversity at 31 December 2020
Male Female
Board 64% 36%
Executive Committee 60% 40%
Direct reports to the Executive Committee 57% 43%
All employees 50% 50%
We have also complied with the target of having at least one
ethnic minority Director on the Board by 2021, as set out in
the Parker Review.
In addition, we have fullled our UK obligations to report our
gender pay gap ratios with respect to our UK subsidiaries,
and published our fourth annual gender pay report during the
year. This report sets out in detail the D&I programmes and
initiatives we pursued during 2020, and can also be found on
our corporate website.
Robert Childs
Chair of the Nominations and Governance Committee
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
Chapter 1 3
A balanced business
Chapter 3 51
Governance
71Hiscox Ltd Report and Accounts 2020
Audit Committee report
In relation to nancial reporting, the primary role of the
Audit Committee (the Committee) is to monitor the integrity
of the nancial statements of the Group and any formal
announcements relating to the Group’s nancial performance,
and review signicant nancial reporting judgements contained
within them. Working with both management and the external
auditor, the Committee reviewed the appropriateness of the
half-year and annual nancial statements, concentrating on,
among other matters:
s the quality and acceptability of accounting policies
and practices;
s the clarity of the disclosures and compliance with
nancial reporting standards and relevant nancial
and governance reporting requirements;
s material areas in which signicant judgements and
estimates have been applied or where there has
been discussion with the external auditor; and
s any correspondence from third parties in relation
to our nancial reporting.
To aid the review, the Committee considered the key
judgements and estimates in the nancial statements as
identied by the Chief Financial Ofcer, as well as reports
from the external auditor on the outcomes of its annual
audit and half-year review. The Committee supported
the external auditor, PwC, in displaying the necessary
professional scepticism its role requires. The primary
areas considered by the Committee in relation to the
2020 Annual Report and Accounts were:
i) Going concern assessment and longer-term
viability statements
The Committee reviewed and advised the Board on
the Group’s going concern and longer-term viability
statements included in this Annual Report and the
assessment reports prepared by management in
support of such statements. As part of this review, the
Committee assessed the methods, assumptions and
judgements underpinning the going concern assessment
in particular around the consideration of the impact of
and the uncertainties due to Covid-19 on the Group’s current
and projected capital and liquidity position. The Committee
was satised by the level of analysis presented during the
year, the related approach taken and statements made in
the Group’s key external reporting. More information on the
going concern and viability statements can be found on
pages 108 to 109.
ii) Reserving for insurance losses
As set out in our signicant accounting policies on pages 134
to 135, the reserving for insurance losses, in particular losses
incurred but not reported, is the most critical estimate in the
Company’s consolidated balance sheet.
The Chief Actuary presents a quarterly report to the Committee
covering Group loss reserves which discusses both the
approach taken by management in arriving at the estimates
and also the key judgments within those estimates.
The Committee reviewed and challenged the key judgements
and estimates in valuing the insurance liabilities. During the
year, Covid-19 was the most signicant loss event to impact
the Group. It is important that the Company can quickly, and
with a reasonable degree of reliability, estimate potential losses
and, in the case of Covid-19, the robust and established large
loss process was used to determine potential exposures and
associated loss estimates. The estimate of insurance claims
related to Covid-19 in 2020, after taking into account the
Supreme Court Judgment for the UK insurance industry test
case on the contractual interpretation of business interruption
policy wordings, is $475million net of reinsurance. This loss
estimate, along with other insurance claims, are continually
evaluated, based on entity-specic historical experience
and contemporaneous developments observed in the wider
industry when relevant, and are also updated for expectations
of prospective future developments. The Committee received
presentations from the Chief Actuary and management on the
process undertaken and the judgements arrived at to establish
key estimates. While there remains uncertainty around the nal
cost of these events to the Group, the Committee notes that the
Group continues to adopt a prudent approach where
uncertainty exists as to the nal cost of settlement.
The Committee also reviewed the level of margin held within
the insurance liabilities in the Group’s balance sheet.
Management conrmed that they remain satised that the
claims reported and claims adjustment expenses, together
with claims incurred but not reported liabilities included in
the nancial statements, provide an appropriate margin over
projected claims costs to allow for the risks and uncertainties
within the portfolio. As with the prior years, the Committee
also considers the report of the external auditor following its
re-projection of reserves using its own methodologies and the
independent actuary who reviews the estimates of insurance
liabilities for the Hiscox Syndicates. On the basis of this work,
72 Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Audit Committee report
it reported no material misstatements in respect of the level of
reserves held by the Group at the balance sheet date. On the
basis of these assessments and the consistent application of
the Group’s reserving principles, the Committee was satised
that the valuation of insurance liabilities at 31 December 2020
were appropriate.
iii) The valuation of the investment portfolio
The Group values and reports its investment assets at fair
value. Due to the nature of the investments, as disclosed in
note 17, the fair value is generally straightforward to determine
for most of the portfolio which is highly liquid. For the element
of the portfolio held in risk assets, a small proportion relies
on a higher degree of estimation. The Committee, through
the Investment Committee, receives quarterly reports on the
portfolio valuation and is content with the process and the
estimates reported. Sensitivity analysis on valuation of assets
is captured within market risk section (note 3.3) of this report.
iv) Recoverability of goodwill and other intangible assets
Judgements in relation to impairment testing relate primarily to
the assumptions underlying the calculation of the value in use of
the Group’s businesses, being the achievability of the long-term
business plans and the macroeconomic and related modelling
assumptions underlying the valuation process.
The Committee reviewed and discussed detailed reporting
with management and challenged the appropriateness
of the assumptions made, the consistent application of
management’s methodology and the achievability of the
business plans.
The Committee focused its attention on the updates made
to assumptions as a result of managements’ assessment of
the impact of Covid-19 on the forecast cash ows, the cash
generating units most impacted and the extent of sensitivity
analysis performed.
The impairment assumptions were reviewed and updated
where required for the potential impact of, and uncertainties
related to, Covid-19. The Committee is satised with the
approach taken and the recoverability of those assets.
v) Accounting for the dened benet scheme
As explained in note 2.15, the Group recognises the present
value of the dened benet obligation, less the fair value of plan
assets at the balance sheet date. The Audit Committee reviewed
the report of the key judgements and estimates in the nancial
statements from the Chief Financial Ofcer, and the results of
the independent pension valuation, and is satised that the
assumptions used to measure the net liabilities are reasonable.
vi) The recoverability of reinsurance assets
As a result of the large loss activity in the year predominantly
due to Covid-19, the level of credit risk exposure to reinsurers
has signicantly increased. The Committee received an update
on the process to monitor the levels of recoverability, including
the level of collateral held, and the regular contact with
counterparties, the ratings of reinsurers and the concentration
of risk. The reinsurer panel and associated exposures appear
to be robust, and management are not aware of any material
issues regarding concentration risk, credit risk or default risk.
This view is supported by assessments provided by S&P and
the Group’s reinsurance brokers. The Committee is satised
with the approach taken and the recoverability of those assets.
vii) The recoverability of deferred tax assets
A deferred tax asset can be recognised only to the extent that
it is recoverable. The recoverability of deferred tax assets in
respect of carry forward losses requires consideration of the
future levels of taxable prot which will be available to utilise
the tax losses. The deterioration in the economic environment
together with signicant Covid-19-related claims in 2020 has
affected the results of the Group and its subsidiaries for the
period and changed assumptions around the timing of when
carried forward losses could be utilised. The Audit Committee
challenged the underlying assumptions for the recognition of
deferred tax assets, principally the availability of future taxable
prots and utilisation period.
viii) Estimated premium income
Another key estimate contained within the Group’s close
process 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, as well as past underwriting experience,
the contractual terms of the policy and prevailing market
conditions. Subsequently, adjustments to those estimates arise
as updated information relating to pricing variables becomes
available – for example, due to declarations obtained on binding
authority contracts, reinstatement premium on reinsurance
73Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Audit Committee report
contracts or other policy amendments. The estimated gross
written premium is regularly reviewed and the movements
are sufciently explained. The Committee is satised with the
approach taken.
Systems and process change projects
The various systems and process change projects under way
across the Group continued this year, particularly within the Retail
business units and in nance, where a multi-year Group-wide
nance transformation programme (FTP) has replaced outdated
nance IT systems and controls. The Committee received
quarterly updates on the status of the FTP which enabled it
to monitor progress and provide challenge where necessary.
This project successfully reached its conclusion this year,
with the deployment of the remaining four of the nine systems.
As is commonly the case, certain areas of nance continue
to require short-term manual workarounds. However, the
Committee is satised that the results of these are appropriate.
Internal audit
The Head of Group Internal Audit updates the Audit Committee
at least quarterly on the progress of the internal audit plan,
the outcomes of recent audits, the progress of related audit
actions, and any other relevant activities including its key
performance measures and the development of its resources.
The internal audit plan is derived using a risk-based approach.
In 2020, key themes included core operating controls,
the embedding of transformational change, the nancial
control framework, data governance and controls, the risk
management framework, privacy and conduct risk.
External auditor
PwC has been the Company’s external auditor since 2016.
PwC is invited to attend all meetings of the Committee and
it is the responsibility of the Committee to monitor their
performance, objectivity and independence. The Committee
discusses and agrees with PwC the scope of its audit plan
for the full-year and the review plan for the interim statement.
The Audit Committee receives reports from PwC at each
meeting which include the progress of the audit, key matters
identied and the views of PwC on the judgements outlined
above. PwC also reports on matters such as their observations
on the Company’s nancial control environment, developments
in the audit profession, key upcoming accounting and regulatory
changes and certain other mandatory communications.
To provide a forum in which any matters of concern could be
raised in condence, the Non Executive Directors met with
the external and internal auditors throughout the year without
management present. The Committee also meets annually with
the auditor and nance team without management present.
Subsequent to the 2020 year-end audit, the UK lead audit
partner at PwC is required to rotate from the engagement,
and this succession planning is well under way.
In 2019, management, in consultation with the Committee,
updated its policy to ensure that no non-audit services will
be contracted with PwC unless it is clear that there is no
practical alternative and there are no conicts of interest
or independence considerations.
Throughout the year, the Audit Committee assesses the
independence, effectiveness and quality of the external audit
process. This process forms the basis for its recommendation
to shareholders to reappoint the external auditor.
Fair, balanced and understandable
The Committee assessed whether the Annual Report, taken as
a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Group’s
nancial position and performance, business model and
strategy. The Committee reviewed the processes and controls
that underpin its preparation, ensuring that all contributors,
and senior management are fully aware of the requirements
and their responsibilities.
Caroline Foulger
Chair of the Audit Committee
74 Hiscox Ltd Report and Accounts 2020
75Hiscox Ltd Report and Accounts 2020
The onus is on each of
us to take responsibility.
Chapter 4:
Remuneration
4
Taking ownership of employee
well-being
At Hiscox we genuinely care for our
customers, for the business and for each
other. When Covid-19 emerged, our rst
priority was the physical safety of our
employees and their families. Then, as it
became clear that lockdown measures
would be prolonged, we recognised the
need to further support employees who
were struggling with the uncertainty and
isolation of extended homeworking.
Enter WeMind, the mental health and
well-being employee network at Hiscox.
The members of this passion-led,
employee-driven network became
champions of well-being during
lockdown. In the UK and Europe,
their effective programme of activities
included training for managers and
employees on mental health for
homeworkers, a weekly newsletter on an
array of mental health topics, and a new
employee award focused on kindness.
In the US and Bermuda, WeMind’s work
ranged from a webinar series dealing
with racial trauma following the death of
George Floyd to the delivery of special
‘wellness kits’ to employees’ homes.
When we think about ‘owning the
moment’, we could not be more proud of
WeMind’s efforts to help employees look
after themselves during uncertain times.
76 Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Letter from the Chair of the Remuneration Committee
Dear fellow Shareholder
At Hiscox, our aim is to deliver strong returns across
the insurance cycle and create sustainable long-term
value for our shareholders. Our remuneration strategy
continues to be designed to attract and keep talented,
ambitious people, and foster a culture that encourages
sustainable high performance in which pay reects results,
as well as effort.
The Committee believes that for all employees, basic pay
should be competitive but not excessive, with bonuses
reecting personal performance, the protability of their
business area and the performance of the whole Group.
We expect all employees to meet or exceed a series of
objectives based on our strategy and values, which are
essential to Hiscox’s business operations and reputation,
including delivering great customer service, complying
with regulation and managing risk.
For Executives across the Group to earn incentives, such as
an annual bonus or long-term share awards, they must have
helped to earn prots and deliver shareholder value above
and beyond demanding performance targets.
We believe this approach works well for both our employees
and shareholders, and I would like to thank shareholders
for the high levels of support for our remuneration policy
in 2020, when we made some important changes. These
changes rebalanced the weighting of incentives towards the
long term in order to encourage and support an ownership
culture, increased the focus on long-term performance,
and addressed our requirements under the UK Corporate
Governance Code.
Response to Covid-19
The impact of a global pandemic has been wide and varied,
and an overview of Hiscox’s response can be found on pages
6 to 7. We have supported our employees globally in the
transition to home-working and offered exible working options
to help with the new demands of juggling work life and home
life. We have also provided socially distanced ofce working,
in line with local government guidelines, and increased the
provision of mental health and well-being services across the
workforce to ensure all employees have access to appropriate
support, advice and training. We have not furloughed any staff
or accessed any of the UK, US or European government’s
support schemes.
Following the AGM, and acknowledging the unprecedented
uncertainty caused by Covid-19, the Committee exercised
its discretion to reduce the actual 2020 Performance Share
Plan (PSP) award levels to approximately 160% of salary for
Executive Directors (from 250% of salary as communicated
in the 2019 Directors’ remuneration report). In addition, in
recognition of the withdrawal of the 2019 nal dividend, we
committed that Executive Directors would not be paid a
bonus until the dividend has resumed.
Performance and remuneration outcomes
In 2020, the Executive Directors drove a resilient performance
in a turbulent year. The top line was stable with gross written
premiums of $4,033.1 million (2019: $4,030.7 million), despite
the economic challenges brought on by Covid-19. The Group
expects to pay $475 million in Covid-19-related claims and
as a result has delivered a pre-tax loss of $268.5 million and
a combined ratio of 114.5%. Excluding this impact, Hiscox’s
combined ratio was 97.0%, which reects the underlying
improvement in performance in many parts of the Group and
the benet of delivering around $80 million in one-off expense
savings – the result of a recruitment freeze and curtailment
of travel and entertainment expenditure, alongside existing
efciency programmes already underway.
The Committee believes that the Executive Directors continue
to drive value for shareholders in the long term and have
achieved a number of key objectives during the year as
outlined on page 83. While the business has made good
progress against the priority areas set out in last year’s
report, it has not been immune to the external impacts of
Covid-19 and the resulting economic contraction, which
created some share price volatility during the period.
Therefore, as the pre-tax ROE hurdle rate of 6% was not
achieved, and taking into account the withdrawal of the
2019 nal dividend, as well as the overall performance of
the business, no bonuses were paid in respect of 2020 to
Executive Directors.
The 2018-2020 Performance Share Plan was set against
stretching net asset value plus dividends per share targets.
The net asset value per share threshold of 7% over the
three-year performance period was not met. The Committee
assessed performance in the round and concluded that there
would be no exercise of discretion to override the outcome of
the performance conditions for 2020, therefore the awards
granted in 2018 will lapse in full.
77Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Chapter 4 75
Remuneration
Letter from the Chair
of the Remuneration
Committee
Chapter 5 107
Shareholder information
2021 remuneration
Executive Directors have been awarded a 2.0% salary
increase effective from 1 April 2021, in line with the average
UK employee increase.
There are no proposed changes to the award levels or structure
of annual bonus awards, which will continue to be based on
pre-tax ROE performance, alongside individual and strategic
performance, including non-nancial factors, the shareholder
and wider stakeholder experience and consideration of risk.
Bonuses will not be paid unless the Group’s performance
exceeds a hurdle rate of return set taking into account
prevailing market conditions.
For the PSP, taking into account feedback received from
a number of our shareholders and their representatives,
we are proposing to introduce a second measure for the
2021 PSP awards to complement the growth in net asset
value plus dividends metric, and provide a broader view
of our performance. It is proposed that, for 2021 awards:
p 60% of the awards will continue to be based on
stretching growth in net asset value (NAV) plus dividends
targets. The Committee has reviewed the targets and
decided that these will remain the same as for the 2020
awards, as disclosed in the 2019 Directors’ remuneration
report. These are considered to be very stretching targets
in the current environment.
p 40% of the awards will be based on relative total
shareholder return (‘TSR’) against a group of global
insurance peers. The vesting schedule for the TSR
element will be in line with UK market norms, with
threshold vesting for median-ranked performance, and
full vesting of this element for upper-quartile performance.
The Committee believes that relative TSR aligns to our
strategy of generating long-term value for shareholders,
benchmarking those returns versus our closest listed peers.
Further detail on the 2021 PSP measures and targets are set
out on page 88.
The Committee has reviewed the 2021 PSP award levels
in the context of Company, individual, and share price
performance. As previously set out, the Committee was
proactive ahead of the 2020 PSP grant and, taking into
account shareholder guidance, exercised its discretion to
reduce the award levels up-front rather than wait to assess
whether there are any ‘windfall’ gains at the point of vesting.
Taking into account the increase in the share price since last
year, the Committee has decided that the 2021 PSP award
levels will revert back to the levels set out in the remuneration
policy as approved by shareholders at the 2020 AGM (i.e. 250%
salary). The Committee will review the PSP outcomes at the
end of the performance period and retains the ability to apply
independent judgement to ensure that the outcome is a fair
reection of the performance of the Company, and individual,
over the performance period.
Wider workforce
During the year the Committee was updated on wider
workforce remuneration trends and policies to aid our
understanding of how Executive Director’s remuneration
aligns to employees.
In the UK, Hiscox has been paying the living wage for a
number of years and in November 2019 received accreditation
from the Living Wage Foundation. This approach ensures
that everyone at Hiscox receives a wage that recognises the
actual cost of living in the UK.
Hiscox also operates an all-employee Sharesave Scheme
to foster a culture of ownership among the wider workforce.
The scheme provides all employees with the opportunity to
save over a three-year period and to purchase Hiscox shares
at a discounted price, and it is popular – with over 60% of
employees across the Group currently participating.
During 2020, remuneration arrangements across the
organisation were reviewed and, below Board level, a new
element has been introduced to the 2021 annual bonus
criteria to incentivise and reward individual contribution,
including individual contributions towards the delivery of
business area priorities for the year. The 2021 Group-wide
business priorities are outlined on page 13. The Committee
discussed whether this would also be appropriate for the
Executive Directors but determined that this was not the
right time to make such a change, although this will be kept
under review.
Executive Directors’ pension benets have always been
consistent with the wider UK workforce, and Executive
Directors receive either a 10% of salary cash allowance
in lieu of the standard employer pension contribution or
a combination of cash and pension contribution, totalling
10% of salary.
UK gender pay reporting
In 2020, Hiscox published its fourth annual gender pay report
for the UK. The gender make-up of our business continues
to evolve, and these changes are reected in this year’s
numbers. The mean pay gap of 21.2% (26.1% prior year)
shows our steady progress at getting more women into
senior (and higher-paid) roles and we are pleased to see
the year-on-year improvement since we started reporting.
The median gure of 25.0% (22.6% prior year) has been
impacted this year by the introduction of part-time teams
in our entry-level customer-facing roles. The majority of
these lower-paid positions were lled by females, which
has increased the proportion of women in our lower
quartile and naturally altered the midpoint pay gap
metric. Although its impact on our gender pay reporting is
disappointing, the part-time teams have been a success in
delivering our strategic objective of increasing tenure within
our customer experience centre in York, and embracing
exible working opportunities has enabled new sources
of talent to join us.
Improving diversity and inclusion remains a priority, and while
our progress so far has been helped by the policies, processes
and partnerships we have established, we recognise there
is more to do. For more on our approach to D&I, and areas of
focus in 2020, see pages 46 to 47 and 70.
In summary
The Remuneration Committee is satised that the 2020
outcomes are aligned with the experience of shareholders and
reective of performance in what has been a challenging year.
Colin Keogh
Chair of the Remuneration Committee
78 Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Remuneration summary
The Hiscox remuneration policy is
designed to drive a culture of high
performance and create sustainable
long-term value for shareholders.
The policy follows three clear principles:
A simple and results-driven,
with variable rewards if Hiscox
delivers prots and shareholder
returns in excess of specied
return thresholds;
A incentivise Executive Directors
appropriately, over the short and
long term; and
A align Executive Directors’ interests
with those of our shareholders,
focusing on effective risk
management, return on equity
(ROE) and net asset value growth,
which drives total shareholder
return over time.
Single gure of £717,243 for the CEO.
Benets
Same as majority of employees.
Performance Share
Plan (PSP)
Aligned to long-term shareholder
interests and performance.
Shareholding guidelines
Aligned to shareholder interests.
Base salary
Competitive but not excessive.
Annual bonus
Aligned to shareholder interests.
No bonus for Executive Directors following
suspension of the dividend and not
achieving the bonus performance hurdle.
Remuneration outcomes for 2020
Long-term performance impacted by
Covid-19 events and catastrophe claims.
PSP awards granted in 2018 will not vest.
Read our updated remuneration policy.
94
A summary of the remuneration
arrangements for Executive Directors
is provided opposite.
Summary of remuneration arrangementsKey principles underpinning
remuneration at Hiscox
79Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Chapter 4 75
Remuneration
Remuneration summary
Chapter 5 107
Shareholder information
Salaries for 2020:
— Bronek Masojada: £654,000
— Aki Hussain: £503,500
— Joanne Musselle: £503,500
Salary increase of 2.75%, in line with average UK employee increase.
Maximum opportunity:
— up to 300% of salary for CEO and CFO;
— up to 400% of salary for CUO.
Over the past ten years, the average bonus to the CEO has been equivalent to 25%
of the current maximum opportunity.
Performance metrics: combination of ROE and individual performance delivered
against set objectives approved by the Board. Disclosure of the ROE target ranges
and detail around the individual performance factors including specic risk-based
objectives used to determine outcomes for 2020 is provided on pages 82 to 83.
Deferral: part deferral of amounts in excess of £50,000.
2020 actual as percentage of salary:
— Bronek Masojada: 0%
— Aki Hussain: 0%
— Joanne Musselle: 0%
In recognition of the withdrawal of the 2019 nal dividend, the Committee agreed
that Executive Directors would not be paid a bonus until the dividend has resumed.
Award subject to three-year performance period and two-year holding period.
Maximum opportunity: 250% of salary for all Executive Directors.
Vesting subject to: net asset value per share growth plus dividends.
20% of maximum vests for achievement of threshold performance.
2020 award as percentage of salary:
— Bronek Masojada: c.160%
— Aki Hussain: c.160%
— Joanne Musselle: c.160%
Holding period: awards subject to a further two-year holding period following vesting.
Salaries for 2021:
— Bronek Masojada: £667,000
— Aki Hussain: £513,500
—Joanne Musselle: £513,500
Salary increase of 2.0%, in line with
the average UK employee increase.
Maximum opportunity, performance
metrics and deferral unchanged.
Maximum opportunity and time
horizons unchanged. 2021 award as
a percentage of salary reinstated to
250% of salary, taking into account the
increase in share price since the 2020
PSP grants. Measures based on NAVPS
growth plus dividends (60% weighting)
and relative TSR (40% weighting).
Share ownership and post-employment
shareholding guidelines unchanged.
Executive Directors’ benets can include health insurance, life insurance, long-term disability schemes and participation in
all-employee share schemes. Retirement benets are delivered via a cash allowance of 10% of salary, paid in lieu of the standard
pension contribution, or a combination of pension contribution and cash allowance, totalling 10% of salary. These benets mirror
those available to most other employees in the organisation.
Share ownership guidelines of 200% of salary for all Executive Directors,
after ve years in role.
2020 actual:
— Bronek Masojada: 4,580%
— Aki Hussain: 159%
Aki Hussain was appointed in September 2016.
— Joanne Musselle: 81% Joanne Musselle was appointed in March 2020.
Post-employment shareholding requirement: retain a shareholding at the level of
the in-employment guideline for one year and half this amount for the following year.
Implementation of policy for 2020 Implementation for 2021
80 Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Annual report on remuneration 2020
This report explains how the remuneration policy was
implemented for the nancial year ending 31 December 2020
and how it will be applied for the 2021 nancial year.
PwC has been engaged to audit the sections in the annual report on remuneration 2020 below entitled ‘Executive Director
remuneration’ and ‘additional notes to the Executive remuneration table, ‘annual bonus’, ‘long-term incentives’, ‘Non Executive
Director remuneration’, ‘Directors’ shareholding and share interest’, ‘Performance Share Plan’ and ‘Sharesave Schemes’,
‘Payments to past Directors’, ‘Payments for loss of ofce’, to the extent that would be required by the Large and Medium-sized
Companies and Groups (Accounts and Reports) Regulations 2013.
Executive Director remuneration
2020
Total split
Name
Salary
£
Benefits
£
Bonus
£
Long term
incentive
plan
1
£
Retirement
£
Total
£
Fixed
remuneration
£
Variable
remuneration
£
Bronek Masojada 649,625 10,533 0 0 57,085 717,243 717,243 0
Aki Hussain 50 0,125 7,532 0 0 45,464 553,121 553,121 0
Joanne Musselle
2
418,458 7,637 0 0 38,404 464,499 464,499 0
2019
Total split
Name
Salary
£
Benefits
£
Bonus
£
Long term
incentive
plan
1
£
Retirement
£
Total
£
Fixed
remuneration
£
Variable
remuneration
£
Bronek Masojada 632,375 10,252 0 0 55,569 69 8,19 6 698,196 0
Aki Hussain 486,750 8,089 0 0 44,248 539,087 539,087 0
Richard Watson
3
486,750 10,780 0 0 44,248 541,778 541,778 0
2020 long-term incentives relate to performance share awards granted in 2018 where the performance period ends on 31 December 2020. The award is due to
vest on 6 April 2021. Based on performance achieved, this award is due to lapse in full. As the award will lapse in full there is no part of the award attributable to
share price appreciation.
2
Joanne Musselle joined the Board 2 March 2020, following her appointment as Group Chief Underwriting Ofcer effective 1 January 2020. Details of Joanne’s
remuneration package on appointment were included in the 2019 Directors’ remuneration report. All aspects of the package are in line with the remuneration policy.
The gures in the 2020 table above relate to 2 March-31 December 2020.
3
Richard Watson stepped down from the Board with effect from 31 December 2019.
Additional notes to the Executive Director remuneration table
Salary
Salary reviews take place in the first quarter of the year, effective from 1 April. As noted in last year’s remuneration report, Executive
Directors’ salaries were increased by 2.75% from April 2020, the same as the average UK-based employee salary increase.
Base salaries for Executive Directors from 1 April 2020 were as follows:
April 2020
£
Bronek Masojada 654,000
Aki Hussain 503,500
Joanne Musselle 503,500
81Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Chapter 4 75
Remuneration
Annual report on
remuneration 2020
Chapter 5 107
Shareholder information
Benets
For 2020, benefits provided for Executive Directors included the healthcare scheme, Sharesave Scheme, life insurance, income
protection insurance and critical illness policies, as well as a Christmas gift hamper.
Retirement benets
Bronek Masojada and Aki Hussain both receive a 10% of salary cash allowance (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 80. Executive
Director retirement benefits are consistent with those offered to the majority of UK employees. This has been the policy at Hiscox
for a number of years.
The table below details the legacy entitlements from the closed defined benefit pension plan.
Pensions
Normal
retirement
age
Increase
in accrued
pension
during
the year
£000
Total accrued
annual pension
at 31 December
2020
£000
Increase in
accrued pension
net of inflation
£000
Transfer value
of accrued
pension
at 31 December
2019
£000
Transfer value
of accrued
pension
at 31 December
2020
£000
Increase/
(decrease)
in transfer value
of accrued
pension
during the year
£000
Bronek Masojada 60 3 61 – 2,331 2,712 381
There are no further accruals under this plan. In the event of retirement prior to the normal retirement age, a reduced pension
would be payable (in accordance with the scheme rules) to reect the earlier payment date.
Variable pay
To ensure that remuneration is aligned with Company performance and the shareholder experience, a significant proportion of pay
is delivered through incentive awards, consisting of an annual bonus and share awards under the Performance Share Plan, which
can vary significantly based on the level of performance achieved. Bonuses are only paid if results exceed a specified threshold set
taking into account prevailing market conditions.
Although the remuneration structure has naturally evolved over time to reflect market and best practice, the simple framework
has been in place for more than 15 years.
Annual bonus
As part of the policy renewal, the bonus opportunity was reduced to 300% of salary from 400% of salary for the Chief Executive
Ofcer and Chief Financial Ofcer and to 400% of salary from 500% of salary for the Chief Underwriting Ofcer.
The bonus is structured in a way that ensures signicant variability in outcomes, including the possibility of no bonus being paid.
The Remuneration Committee believes that the most appropriate measure for the calculation of the bonus pool is pre-tax return
on equity (ROE), as this aligns management’s interests with those of shareholders, minimises the possibility of anomalous results,
and ensures that incentives for Executive Directors and other employees are tied to the Company’s prot performance.
The Executive Directors, along with other employees across the Group, participate in prot-related bonus pools, which are
calculated at a business unit level and for the Group as a whole. In determining the bonuses to be paid to Executive Directors,
the Remuneration Committee bases its judgement on both the performance of the Group and a robust assessment of individual
performance, including adherence to specic risk management objectives. The Remuneration Committee also seeks input from
the Chief Risk Ofcer and Chief Actuary to aid its assessment of whether bonus outcomes are appropriate.
Bonuses are not paid unless the Group’s performance exceeds a given threshold, irrespective of individual performance. Over
the past ten years there have been four occasions when the Group delivered a pre-tax ROE below the required threshold and no
bonuses were paid to Executive Directors. A commitment was made in 2020 that Executive Directors would not be paid a bonus
until the dividend had resumed, irrespective of the Group’s performance.
0510 15 20 25 30 35 40
0
50
100
150
200
250
300
350
400
0% 5% 10%15% 20% 25% 30% 35% 40%
40
0
35
0
30
0
25
0
20
0
15
0
10
0
50
0
Return on equity
2001
2020
2011 2017
2018
2002
2008
2005
2010
2007
2009
2006
2003
2016
2004
2013
2015
2012
2014
Below zero
Bonu
s as a percentage of salary
2019
Executive Directors’ cash incentives and return on equity
82 Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Chapter 4 75
Remuneration
Annual report on
remuneration 2020
Chapter 5 107
Shareholder information
When setting targets, the Committee seeks to motivate strong performance while also encouraging sustainable behaviours, in line
with the dened risk appetite of the business. In determining the size of the Executive Director bonuses for 2020, the Committee
used the following framework. Actual bonus outcomes also take into account individual performance and risk management.
Pre-tax return on equity Indicative bonus range (% of max)
<RFR +5% 0%
RFR +5% to RFR +10% 0-30%
RFR +9% to RFR +14% 25-55%
RFR +13% to RFR +18% 45-75%
RFR +16% to RFR +21% 65-90%
Greater than RFR +19% 80-100%
The risk-free rate (RFR) is reviewed annually using government bonds as a reference point, reecting the rate available to investors without commercial risk.
For 2020, the RFR was set at 1%. For 2020 a maximum bonus would have required ROE performance of at least RFR plus 20%.
Junior and mid-level employees also participate in a personal performance bonus scheme. Awards under this scheme are based
entirely on individual performance ratings. It is designed to ensure that junior and mid-level employees continue to be motivated to
perform well, irrespective of overall Group performance. The benet is typically up to 10% of salary.
Pay for performance – track record
The chart below shows the relationship between the Group ROE performance and bonus awards for Executive Directors over an
extended period. It demonstrates the strong link between Company performance and bonus outcomes.
Performance outcomes for 2020
In recognition of the withdrawal of the 2019 nal dividend, the Committee agreed that Executive Directors would not be paid
a bonus until the dividend has resumed. For completeness, the table opposite sets out the key objectives and individual
achievements of each Executive Director. The pre-tax ROE for 2020 was -10.8%.
83Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Chapter 4 75
Remuneration
Annual report on
remuneration 2020
Chapter 5 107
Shareholder information
2020 key objectives and individual achievements by the Executive Directors
Key objectives Achievements
Bronek Masojada
Deliver the 2020
business plan
Bronek has led the business to deliver a stable top-line, despite the economic
challenges brought on by Covid-19. The Group expects to pay $475million in
Covid-19-related claims; however, excluding this impact, Hiscox’s combined ratio
was 97.0%, reecting the underlying improvement in performance in many parts
of the Group and the benet of around $80 million in one-off expense savings –
the result of a recruitment freeze and curtailment of travel and entertainment
expenditure, alongside existing efciency programmes already underway.
Deliver Executive
Committee
priorities
The multi-year priority of digital distribution, particularly across Hiscox Retail and
in the big-ticket adoption of the Lloyd’s PPL initiative, has been successfully
accelerated during the year. Operational resilience became an increased focus
for the Executive Committee in light of Covid-19, and the Group did well here,
pivoting to remote working and maintaining good levels of service including
paying $1.9 billion in claims, despite the disruption.
Ensure Hiscox
operates within
risk, regulatory
and societal
expectations
Bronek led the business’s response to Covid-19 including Hiscox UK’s efforts to
provide clarity and certainty to business interruption policyholders via the FCA’s
UK business interruption test case. Commencing and concluding the legal process
in just seven months is exceptionally fast and allows the business of paying valid
claims to continue.
Aki Hussain Balance sheet
management
Aki oversaw the optimisation of the Group’s capital and liquidity position to ensure
ongoing nancial exibility, particularly in light of Covid-19. This included withdrawal
of the 2019 nal and 2020 interim dividend payments; the purchase of more than
$100million of additional reinsurance, renegotiation of our bank lending facilities;
and a £375 million equity raise. Consequently, the balance sheet remains strong
and the Group can seize opportunities as they emerge.
Enhancing
protability
and ROE
Aki has ensured that ROE enhancing opportunities are identied through a
repeatable process of cross-business unit and functions analysis and insight.
This has driven consistency in how the Group identies business that generates
a sufcient return.
Aki appointed a new CIO in 2020, which led to a repositioning of the portfolio to
take advantage of market volatility in early 2020, increasing investment returns.
Deliver nance
transformation
Our multi-year nance transformation programme concluded this year with the
deployment of the remaining four of the nine systems. A process of periodic
reviews and assessments, including spotting new ways nance can contribute to
business strategy, drive prots and increase shareholder value has also begun.
Joanne Musselle Active portfolio
management
Joanne leads the Group’s efforts on continuous improvement in underwriting, which
includes a focus on xing or materially shrinking the bottom decile business while
investing in top performing lines. Although Covid-19 had a signicant impact on the
2020 underwriting year, the underlying loss ratio is promising; the result of discipline,
remediation of underperforming lines – where poorest decile business exposure has
reduced by 26% – and improving market conditions.
Exposure
management
and view of risk
Joanne has driven continued investment in the Hiscox view of risk. In 2020,
this included model changes for Japanese typhoon, US wind, US ood and
Californian wildre, an investment in enhanced modelling capabilities for
both cyber and casualty risks, and detailed assessment of Covid-19-related
third-party claims and/or recessionary trends to inform underwriting approach
and adjustment where necessary.
Developing
underwriting
talent
Joanne has continued to identify and develop underwriting talent, focusing on the
key competencies and characteristics necessary not just for today but for the future.
Partnering with a games development company, a new custom-built 3D simulation
offers a different way of helping underwriters learn the key demands of the job.
84 Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Chapter 4 75
Remuneration
Annual report on
remuneration 2020
Chapter 5 107
Shareholder information
Long-term incentives
Performance Share Plan awards (PSP) where the performance period ends with the 2020 nancial year
The Executive Directors were granted nil-cost options under the PSP on 6 April 2018 for the three-year performance period
1January2018 to 31December2020.
The performance conditions for this award were set at the start of the performance period and are as follows:
Growth in
net asset value
plus dividends
Proportion of PSP
vesting measured
on a per-share basis
%
Minimum threshold vesting RFR + 6 = 7 20
Maximum vesting RFR + 14 = 15 100
Straight-line vesting between these points
The risk-free rate (RFR) was set at 1%.
Performance outcome
Based on the three-year average growth in net asset value plus dividends of -2.04%, the awards ending with the 2020
performance year will not vest as the minimum performance threshold has not been met.
PSP awards granted during the 2020 nancial year
The 2019 annual report on remuneration and remuneration policy, which were approved by shareholders at the 2020 AGM,
provided for a maximum allowance for awards for the Executive Directors totalling 250% of salary. Acknowledging the
unprecedented uncertainty caused by Covid-19, the Committee exercised discretion to reduce the awards payable to
approximately 160% of salary. As a result of this, the additional stretch targets for awards above 200% of salary, as set
out in the 2019 Directors’ remuneration report, do not apply to this award.
On 15 May 2020, the Executive Directors were granted nil-cost options under the PSP as shown below.
Number of
awards granted
Market prices
at date of grant*
£
Market value
at date of grant
£
Bronek Masojada 156,000 6.998 1,091,688
Aki Hussain 120,500 6.998 843,259
Joanne Musselle 120,500 6.998 843,259
* The middle market quotation on the date of grant (15 May 2020) was £6.998. The middle market quotation immediately prior to grant (14 May 2020) was £6.744
which corresponds to an award level of c.160% of salary.
The performance condition for these awards, measured over the period 1 January 2020 to 31 December 2022 is as follows:
Growth in
net asset value
plus dividends
Proportion of PSP
vesting measured
on a per-share basis
%
Minimum threshold vesting RFR + 6 = 7 20
Maximum vesting RFR + 14 = 15 100
Straight-line vesting between these points
The net asset value plus dividends targets, which are reviewed annually, are designed to outperform the risk-free rate (RFR) and
motivate the management team while driving the right behaviours. The RFR for the awards granted in 2020 was 1%.
Executive Directors will be required to retain any shares vesting (net of tax charges) at the end of the performance period for a
further two years (ve years post the start of the performance period).
Non Executive Director remuneration
The table below sets out the remuneration received by the Non Executive Directors for the nancial years ending
31December2020 and 31 December 2019.
2020
Total split
Ltd Board
fee
£
Ltd Committee
fee
£
Subsidiary Board
fee
£
Benefits
1
£
Total Hiscox
fees
£
Fixed
£
Variable
£
Robert Childs (Chairman)
2
295,000 – – 11,655 306,655 306,655 –
Caroline Foulger 62,774 35,766 88,956 – 187,496 187,496 –
Michael Goodwin 62,774 28,467 32,847 – 124,088 124,088 –
Thomas Hürlimann 62,774 28,467 52,212 – 143,453 143,453 –
Colin Keogh 75,182 35,037 48,000 – 158,219 158,219 –
Anne MacDonald 70,073 28,467 – – 98,540 98,540 –
Constantinos Miranthis 62,774 28,467 35,766 – 127,007 127,007 –
Lynn Pike 62,774 33,577 56,934 – 153,285 153,285 –
2019
Total split
Ltd Board
fee
£
Ltd Committee
fee
£
Subsidiary Board
fee
£
Benefits
1
£
Total Hiscox
fees
£
Fixed
£
Variable
£
Robert Childs (Chairman)
2
290,000 – – 11,8 6 0 301,860 301,860 –
Caroline Foulger 67, 3 9 8 36,834 89,469 – 193,701 193,701 –
Michael Goodwin 67, 3 9 8 28,997 22,727 – 119,122 119,122 –
Thomas Hürlimann 67, 3 9 8 28,997 50,000 – 146,395 146,395 –
Colin Keogh 79,937 35,266 47,000 – 162,204 162,204 –
Anne MacDonald 67,39 8 28,997 – – 96,395 96,395 –
Robert McMillan
3
25,344 10,904 62,696 – 98,943 98,943 –
Constantinos Miranthis 67, 3 9 8 28,997 37,618 – 134,013 134,013 –
Lynn Pike 67, 3 9 8 34,483 61,783 – 163,664 163,664 –
Benets include life assurance and healthcare.
Robert Childs also chairs subsidiary Boards for no additional fee. The total 2019 fee has not changed but the presentation has been amended in order to be
consistent with 2020.
Robert McMillian stepped down from the Ltd Board following the May 2019 AGM.
Fees are paid in multiple currencies – 2019 fees were converted using £1: €1.14 and £1: $1.276. 2020 fees were converted using £1: €1.13 and £1: $1.37.
Membership of the Remuneration Committee
The Remuneration Committee members during the year were Caroline Foulger, Lynn Pike, Anne MacDonald, Thomas Hürlimann,
Michael Goodwin, Constantinos Miranthis and Colin Keogh (Chairman).
85Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Chapter 4 75
Remuneration
Annual report on
remuneration 2020
Chapter 5 107
Shareholder information
86 Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Chapter 4 75
Remuneration
Annual report on
remuneration 2020
Chapter 5 107
Shareholder information
Directors’ shareholding and share interests
To align their interests with those of Hiscox shareholders, senior managers are expected to own a minimum number of Hiscox
shares. Executive Directors are required to hold Hiscox shares valued at 200% of salary within ve years of becoming an Executive
Director. Bronek Masojada has over 20 years’ service so his shareholding of 4,580% far exceeds the guidelines. Aki Hussain and
Joanne Musselle have not yet been Executive Directors for ve years. Aki Hussain’s shareholding is 159% and Joanne Musselle’s
is 81%, using the closing share price on 31 December 2020.
There is a post-employment shareholding guideline for Executive Directors which will apply for a period of two years from
stepping down from the Board. This will be set at the level of the in-employment shareholding guideline for one year (or the
actual shareholding on stepping down from the Board if lower) and at half of this amount for the following year.
The interests of Executive and Non Executive Directors are set out below, including shares held by connected persons.
On 8 January 2021, Colin Keogh received 1,404 shares in lieu of fees, otherwise there have been no changes in the Director
share interests between 31 December 2020 and 3 March 2021.
Directors
31 December
2020
6.5p ordinary
shares
number of shares
beneficial
31 December
2019
6.5p ordinary
shares
number of shares
beneficial
Executive Directors:
Bronek Masojada 3,014,225 2,990,10 9
Aki Hussain 80,786 71,794
Joanne Musselle 40,798 33,10 6
Non Executive Directors:
Robert Childs 1,208,502 1,200,810
Caroline Foulger 29,000 13,231
Michael Goodwin 12,678 4,986
Thomas Hürlimann 15,786 8,863
Colin Keogh 39,695 24,967
Anne MacDonald 39,893 35,375
Constantinos Miranthis 6,832 4,525
Lynn Pike 1,538 –
87Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Chapter 4 75
Remuneration
Annual report on
remuneration 2020
Chapter 5 107
Shareholder information
Performance Share Plan (PSP)
Awards in the form of nil-cost options are granted under the PSP as a percentage of salary. All awards are subject to performance
conditions. The interests of Executive Directors are set out below:
Name
Number of
awards at
1 January 2020
Number of
awards granted
Number of
awards lapsed
Number of
awards exercised
Number of
awards at
31 December
2020
Mid market price
at date of grant
£
Average market
price at date of
exercise
£
Date from
which released
Bronek Masojada 130,950 – – – 130,950 6.94 17-Mar-17*
117, 0 0 6 – – – 117,0 0 6 8.82 13-Apr-18*
59,301 – – – 59,301 9.56 08-Apr-19*
105,000 – (105,000) – – 11.19 07-Apr-20
83,250 – – – 83,250 14.88 06-Apr-21
82,000 – – – 82,000 15.46 08-Apr-22
– 156,000 – – 156,000 7.00 15-May-23
Aki Hussain 36,873 – – – 36,873 10.46 08-Apr-19*
75,000 – (75,000) – – 11.19 07-A pr-20
58,000 – – – 58,000 14.88 06-Apr-21
63,250 – – – 63,250 15.46 08-Apr-22
– 120,500 – – 120,500 7.00 15-May-23
Joanne Musselle 32,361 – – – 32,361 5.68 02-Apr-16*
29,694 – – – 29,694 6.94 17-Mar-17*
24,750 – – – 24,750 8.82 13-Apr-18*
9,883 – – – 9,883 9.56 08-Apr-19*
25,000 – (25,000) – – 11.19 07-Apr-20
30,000 – – – 30,000 14.88 06-Apr-21
30,000 – – – 30,000 15.46 08-Apr-22
– 120,500 – – 120,500 7.00 15-May-23
Total 992,318 397,000 (205,000) – 1,184,318
*Awards have vested but are unexercised.
Sharesave Schemes
The interests of Executive Directors under the Sharesave Schemes are set out below:
The scheme offers a three-year savings contract where the exercise price of the options is calculated on an average share price
over ve days prior to the invitation date, with a 20% discount. Sharesave options are not subject to performance.
Number of
options
at
1 January 2020
Number of
options granted
Number of
options lapsed
Number of
options exercised
Number of
options
at
31 December
2020
Exercise price
£
Market price
at date
of exercise
£
Date from which
exercisable Expiry date
Bronek Masojada 1,040 – – (1,040) – 8.648 11,085 01-Jun-20 30-Nov-20
778 – – – 778 11.556 01-May-21 31-Oct-21
Aki Hussain 2,081 – (2,081) – – 8.648 01-Jun-20 30-Nov-20
Joanne Musselle 1,557 – – – 1,557 11.556 01-May-21 31-Oct-21
Total 5,456 – (2,081) (1,040) 2,335
Payments for loss of ofce
No payments were made during the year for loss of ofce.
Payments to past Directors
No payments were made to former Directors during the year.
88 Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Implementation of remuneration policy for 2021
Salary
Annual salary reviews take effect from April each year. The Committee takes account of a number of factors, primarily the increase
applied to other UK-based employees. The Committee applies judgement when using external market data.
For 2021, salaries for Executive Directors will be increased by 2.0%. This is in line with other UK-based employees. Salaries from
April 2021 will be as follows:
April 2021
£
Bronek Masojada 667,000
Aki Hussain 513,500
Joanne Musselle 513,500
Annual bonus
The maximum opportunity for the year ending 31 December 2021 will remain unchanged from 2020, being 300% of salary for
both the Chief Executive Ofcer and Chief Financial Ofcer and 400% of salary for the Chief Underwriting Ofcer. In determining
the bonuses to be paid to Executive Directors, the Committee bases its judgements on both the performance of the Group and a
robust assessment of individual performance. Bonuses will not be not paid unless the Group’s performance exceeds a given ROE
threshold. This threshold and the ranges used to support the Committee’s decision-making are considered to be commercially
sensitive at this time and will be disclosed in the 2021 Directors’ remuneration report, together with an overview of the individual
objectives set and performance against these.
Performance Share Plan (PSP)
In line with our shareholder-approved remuneration policy, the maximum opportunity for the awards to be granted to the
Executive Directors in 2021 will be 250% of salary. Awards will continue to be based on a three-year performance period followed
by a two-year holding period.
For 2021, 60% of awards will be based on stretching growth in net asset value (NAV) plus dividends targets, measured on a per
share basis with 40% based on relative total shareholder return (TSR) against a group of global insurance peers.
The Committee considers that growth in NAV continues to be a key metric for the PSP given that our strategy is built around the
objective of generating long-term shareholder value and NAV is aligned with shareholder value creation. The targets for the 2021
awards are unchanged from those set out in the 2019 Directors’ remuneration report and the Committee considers that they are
very stretching targets in the current environment.
Growth in NAV plus dividends measured on a per-share basis Award vesting (% of maximum)*
Less than RFR + 6% p.a. 0
RFR + 6% p.a. 16
RFR + 14% p.a. 80
Equal to or greater than RFR +17% p.a. 100
The risk-free rate (RFR) will be 0% for 2021.
*Applies to 60% of awards. Maximum is 250% salary. Straight-line vesting in between each point.
89Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Chapter 4 75
Remuneration
Implementation of
remuneration policy
for 2021
Chapter 5 107
Shareholder information
Relative total shareholder return has been selected as a measure for the 2021 awards to complement the absolute NAV metric
and is aligned to our strategy of generating long-term value for shareholders, benchmarking those returns versus our closest listed
peers. The vesting schedule for the element of the award based on TSR is set out below.
Relative TSR Award vesting (% of maximum)*
Below median 0
Median 20
Upper quartile 100
*Applies to 40% of awards. Straight-line vesting in between each point.
The peer group will consist of the following 24 companies: Admiral Group, Alleghany, American Financial Group, Arch Capital, Argo, Axis Capital, Beazley,
Conduit, Cincinnati Financial, CNA Financial, Direct Line Insurance Group, Everest Re, Fairfax Financial Holdings, Hanover Insurance, James River Group,
Kinsale Capital Group, Lancashire Holdings, Markel, QBE, Renaissance Re, RLI, SCOR, White Mountains Insurance Group, and WR Berkley.
Non Executive Director fees
The Non Executive Director fees which apply for 2021 are set out below. These remain unchanged from 2020.
2021
fees
Board Chairman and subsidiary services £295,000
Basic fee $86,000
Additional fees for:
Audit Committee Chair $26,000
Audit Committee member $16,000
Remuneration Committee Chair $18,000
Remuneration Committee member $9,000
Risk Committee Chair $17,000
Risk Committee member $10,000
Nominations and Governance Committee member $4,000
Senior Independent Director fee $17,000
Employee Liaison fee $10,000
90 Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
External Non Executive Directorships
Executive Directors may not accept any external appointment that may give rise to a conict of interest, and all external
appointments require the consent of the Chairman. During the year Bronek Masojada held Directorships on the Board of the
Association of British Insurers and Pool Reinsurance Company Limited and was Chair of Policy Placement Limited. Bronek
Masojada was remunerated £42,090 for his Directorship at Pool Reinsurance Company Limited. Aki Hussain held a Directorship
at VISA Europe Limited and received a fee of £115,000. Joanne Musselle was remunerated £18,500 for her Directorship at Realty.
External advisors
The Committee received independent advice from Deloitte, who were appointed by the Committee in 2013 following a competitive
tender process. Deloitte is a founder member of the Remuneration Consultants Group and, as such, voluntarily operates under its
code of conduct. During the year, Deloitte’s executive compensation advisory practice advised the Committee on developments
in market practice, corporate governance and institutional investor views, and on the development of the Company’s incentive
arrangements. Total fees for advice provided to the Committee during the year were £78,700 based on a time and materials basis.
The Committee regularly reviews the advice it receives and is satised that this has been objective and independent. During the
year Deloitte also provided the Company with other tax and consulting services.
In addition to the external advisors, the Chief Executive and Chief Human Resources Ofcer attend the Committee meetings by
invitation and provided material assistance to the Remuneration Committee during the year. No Director or Committee member
was involved in determining their own remuneration during the year.
Statement of shareholder voting
At the AGM on 14 May 2020, the Directors’ annual report on remuneration and remuneration policy received the votes below
from shareholders.
Annual remuneration
report
Remuneration
policy
For 238,930,420 230,333,655
% 99.44 95.86
Against 1,352,487 9,949,668
% 0.56 4.14
Withheld 33,014 32,597
Total votes 240,315,921 240,315,920
Other remuneration matters
91Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Chapter 4 75
Remuneration
Other remuneration
matters
Chapter 5 107
Shareholder information
Total shareholder return performance
The graph below shows the total shareholder return of the Group against the FTSE All-Share and FTSE Non-Life Insurance
indices. These reference points have been shown to assess performance against the general market and industry peers.
Between December 2010 and 2020, Hiscox delivered total shareholder return of 190%.
Total shareholder return
(%)
600
550
500
450
400
350
300
250
200
150
100
50
0
-50
Dec 19
Dec
20
Dec 18
Dec 17
Dec 16
Dec 15
Dec 14
Dec 13
Dec 12
Dec 11
Dec 10
-50
0
50
100
150
200
250
300
350
400
450
500
550
600
Hiscox
FTSE All-Share
FTSE Non-Life Insurance
Chief Executive historic remuneration
The table below shows the single total remuneration gure for the Chief Executive for the past ten years.
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
CEO single
gure of
remuneration (£) 1,509,248 1,938,759 2,341,737 3,130,535 3,358,894 3,970,466 2,394,428 1,818,086 698,196 717,243
Annual bonus
as percentage
of current max 0 46 51 44 39 64 0 9 0 0
PSP vesting
as percentage
of maximum
opportunity 85 39 53 100 100 100 85 47 0 0
Prior to 2015 the annual bonus was operated on an uncapped basis. In order to facilitate comparison the cap has been applied
retrospectively.
92 Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Chapter 4 75
Remuneration
Other remuneration
matters
Chapter 5 107
Shareholder information
Balance between pay elements
The chart below shows the balance between xed pay, annual variable pay and long-term variable pay for the CEO over the past
ve years.
Comparator data
Remuneration for the wider workforce
The Remuneration Committee receives information on Group-wide remuneration policies and uses internal and external
measures to assess the appropriateness of the remuneration policy and outcomes for Executive Directors. During the year, the
Committee reviewed information on market levels of pay in our peer group, bonus pools split by business area, levels of share
plan participation and pay ratios between Executives and average employees. No employees were furloughed and all were offered
exible working options to help juggle the demands of work life and home life during 2020.
Chief Executive pay ratio
The CEO’s total remuneration compared with the median (50th percentile) remuneration of the Company’s UK employees as at
31December2020 is shown below, along with the 25th and 75th percentiles.
We selected calculation method ‘Option A’ as it is the more robust approach and favoured by investors. This method captures all
pay (excluding overtime due to its volatility) and benets for the nancial year to 31 December 2020 and aligns with how the ‘single
gure’ table is calculated (from which there has been no deviation). Part-time employee single gures were annualised to provide
more meaningful comparison.
Full year
Calculation
methodology
P25
(lower quartile)
P50
(median)
P75
(upper quartile)
2020 A 20:1 12:1 8:1
2019 A 19:1 11:1 7:1
The table below shows the salary and total remuneration of each employee at the quartile positions.
2020
P25
£
P50
£
P75
£
Salary 30,342 50,116 68,915
Total remuneration 35,481 59,980 92,461
2019
Salary 29,607 52,248 81,14 5
Total remuneration 36,210 61,155 94,661
The Committee has considered the pay data for the three employees identied and believes that it fairly reects pay at the relevant
quartiles among the UK employee population. There has been minimal change in the ratios over the last year, primarily as a
result of the CEO not receiving a bonus in either year and the long-term incentives lapsing. In future years the expectation is that
the ratios will be higher and more variable as the remuneration of our most senior executives, including the CEO, is more highly
performance geared than other roles in the business. The Committee is comfortable that the pay ratio for 2020 aligns to the pay
and progression policies for employees, in particular that pay is truly linked to performance and that individuals are appropriately
motivated and rewarded according to their knowledge and seniority within the business.
CEO remuneration – short-term versus long-term weighting Fixed pay – salary and benets
PSP – value at vesting
PSP – share price appreciation
Annual bonus
2020
2019
2018
2017
2016
0% 10%20% 30%40% 50%60% 70% 80%90% 100%
73%27%
38%
46%16%
12%51%37%
100%
100%
93Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Chapter 4 75
Remuneration
Other remuneration
matters
Chapter 5 107
Shareholder information
Percentage change in remuneration of the Board Directors
The table below shows the percentage change in remuneration for each Executive and Non Executive Director, between the year
ended 31 December 2019 and 31 December 2020. Salary and bonus are compared against all employees globally, benets are
compared against all UK-based employees, reecting the location of the Executive Directors.
% change
Salary/fees Benefits Bonus
2
All employees
1
4.3 5.9 (3 6.1)
Executive Directors:
Bronek Masojada 2.8 2.7 –
Aki Hussain 2.8 (6.9) –
Joanne Musselle
3
– – –
Non Executive Directors:
4
Robert Childs 1.7 (1.7) –
Caroline Foulger (3.2) – –
Michael Goodwin 4.2 – –
Thomas Hürlimann (2.0) – –
Colin Keogh (2.5) – –
Anne MacDonald 2.2 – –
Constantinos Miranthis (5.2) – –
Lynn Pike (6.3) – –
1
Median employee salary, benets and bonus have been calculated on a full-time equivalent basis. Salary and benets are calculated as at 31 December,
bonus is that earned during the year ending 31 December.
2
No bonuses were paid to Executive Directors in respect of 2019 and 2020.
3
Joanne Musselle was appointed to the Board on 2 March 2020.
4
Non Executive Director fees are subject to exchange rate uctuations.
Relative importance of the spend on pay
The charts below show the relative movement in prot, shareholder returns and employee remuneration for the 2019 and 2020
nancial years. Shareholder return for the year incorporates the distribution made in respect of that year. Employee remuneration
includes salary, benets, bonus, long-term incentives and retirement benets. Prot is the ultimate driver behind the performance
metrics of the bonus and long-term incentive schemes. Prot before tax can be located on page 122.
Prot/(loss) before tax ($m)
-605.7 (% change)
Dividend and return of
capital to shareholders ($m)
-100% (% change)
Total employee remuneration ($m)
+11.5 (% change)
53
40
312
(268)
0
348
2019 2019
(restated)*
20192020 2020 2020
* Restated to reect cancellation of full-year 2019
nal dividend. See note 29 for further details.
94 Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Remuneration policy
Hiscox has a forward-looking remuneration policy for its
Board members.
Future policy table
Executive Director remuneration
Base salary
Purpose and link to strategy Fixed-pay elements enable the Company to be competitive in the recruitment market when
looking to employ individuals of the calibre required by the business.
Operation Base salary is normally reviewed annually, taking into account a range of factors including
ination rate movements by country, relevant market data and the competitive position of
Hiscox salaries by role.
Individual salaries are set by taking into account the above information as well as the individual’s
experience, performance and skills, increases to salary levels across the wider Group and
overall business performance.
By exception, an individual’s salary may be amended outside of the annual review process.
Maximum potential value The salaries for current Executive Directors which apply for 2021 are set out on page 88.
Executive Directors’ salary increases will normally be in line with overall employee salary
increases in the relevant location.
Increases above this level may be considered in other circumstances as appropriate (for
example, to address market competitiveness, development in the role, or a change in role
size, scope or responsibility).
Performance metrics Individual and business performance are taken into account when setting salary levels.
Application to broader
employee population
Process for review of salaries is consistent for all employees.
The policy was approved at the 2020 AGM and is replicated below, including how it will be implemented in 2021 shown
in italics. The original policy can be viewed in the 2019 Annual Report and Accounts at hiscoxgroup.com.
95Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Chapter 4 75
Remuneration
Remuneration policy
Chapter 5 107
Shareholder information
Future policy table
Executive Director remuneration
Benets (including retirement benets)
Purpose and link to strategy Fixed-pay elements enable the Company to be competitive in the recruitment market when
looking to employ individuals of the calibre required by the business.
Operation Retirement benets
These vary by local country practice but all open Hiscox retirement schemes are based
on dened contributions or an equivalent cash allowance. This approach will be generally
maintained for any new appointments other than in specic scenarios (for example, local
market practice dictates other terms). For current Executive Directors, a cash allowance
of up to 10% of salary is paid in lieu of the standard employer pension contribution, or a
combination of pension contributions and cash allowance, totalling 10% of salary.
Certain Board members retain legacy interests in closed dened benet schemes. However,
there is no entitlement to any further accrual under these schemes.
Other benets
Benets are set within agreed principles but reect normal practice for each country. Hiscox
benets include, but are not limited to: health insurance, life assurance, long-term disability
schemes and participation in all-employee share plans such as the Sharesave Scheme.
Executive Directors are included on the directors and ofcers’ indemnity insurance.
The Committee may provide reasonable additional benets based on the circumstances
(for example, travel allowance and relocation expenses) for new hires and changes in role.
Maximum potential value Set at an appropriate level by reference to the local market practice and reecting individual
and family circumstances.
Pension benets will be in line with the standard employer contribution taking into account any
local requirements.
Performance metrics
None.
Application to broader
employee population
Executive Directors’ benets are determined on a basis consistent with all employees.
Chapter 2 17
A closer look
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Chapter 4 75
Remuneration
Remuneration policy
Chapter 5 107
Shareholder information
96 Hiscox Ltd Report and Accounts 2020
Future policy table
Executive Director remuneration
Annual bonus
Purpose and link to strategy To reward for performance against the achievement of nancial results over the nancial year
and key objectives linked to the strategic priorities.
To provide a direct link between reward and performance.
To provide competitive compensation packages.
Operation Executive Directors participate in prot-related bonus pools.
Bonus pools are calculated at a business unit level and for the Group as a whole on the basis of
Group nancial results. For 2021, the bonus pool will be funded by a set percentage of prots
on achievement of a hurdle rate of ROE. The bonus for prior years was determined on a similar
basis. Further detail is set out on page 82.
For Executive Directors, individual allocations from the pool are determined by the
Remuneration Committee based on a judgement of various factors including:
p size of the Group bonus pool;
p results of business area (where relevant);
p individual performance, including non-nancial and strategic factors; and
p consideration of risk.
Amounts are paid in accordance with the bonus deferral mechanism described on page 97.
Bonus awards are non-pensionable.
Bonus awards are subject to malus and clawback provisions as described in the notes to the
policy table on page 101.
Maximum potential value The maximum bonus opportunity for the Executive Directors will be as follows:
p CEO and CFO – 300% of salary;
p CUO – up to 400% of salary.
Where performance is deemed to be below a predetermined hurdle, payouts will be nil.
The total of individual bonuses paid to Executive Directors for a year will not normally
exceed 15% of the total pool. If the number of Executive Directors increased in the future,
this percentage would be adjusted as required.
Performance metrics Performance is measured over one nancial year.
Bonus pools are determined based on nancial performance against a hurdle (reviewed
annually). Performance at or above this hurdle is rewarded and where performance falls below
this hurdle, payouts will be nil. Financial performance is therefore the main determinant of
overall bonus payouts.
In determining the level of bonuses awarded, the Committee also considers a range of
other factors including the achievement of stretching personal and strategic objectives
during the relevant year together with a consideration of risk, ensuring a robust assessment
of performance.
Application to broader
employee population
The operation of the annual incentive is consistent for the majority of employees across
the Group.
Arrangements tailored to roles and responsibilities are operated for selected positions.
Bonuses for more junior employees are calculated using a more formulaic approach.
Further details are set out on page 82.
Chapter 2 17
A closer look
Chapter 1 3
A balanced business
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Chapter 5 107
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97Hiscox Ltd Report and Accounts 2020
Future policy table
Executive Director remuneration
Bonus deferral
Purpose and link to strategy To encourage retention of employees.
To facilitate and encourage share ownership in order to align senior employees with
Hiscox shareholders.
Operation Larger bonuses are normally deferred over a three-year period and paid subject to continuing
service as explained in the table below.
Deferral points are determined based on the currency in which the Executive Director’s salary
is paid and are normally as follows:
Bonus of £50,000, €75,000, $100,000,
and below
Bonus above £50,000 and below £100,000
Bonus above €75,000 and below €150,000
Bonus above $100,000 and below $200,000
Bonus above £100,000, €150,000, $200,000
Paid shortly after the end of the nancial year
in which the bonus was achieved.
£50,000, €75,000, $100,000, paid shortly
after the end of the nancial year in which the
bonus was achieved.
Balance of bonus split 50% to be paid after
year two (24 months after the start of the
bonus year), and 50% after year three
(36 months after the start of the bonus year).
50% of bonus paid shortly after the end of the
nancial year following the announcement
of results.
Balance of bonus split 50% to be paid after
year two, and 50% after year three.
Participants are able to (subject to any local tax/legal/regulatory restrictions) draw deferred
bonuses early in certain circumstances in order to enable the acquisition of Hiscox shares.
Such amounts remain subject to continued employment.
The Remuneration Committee can agree to early payment of deferred bonuses to Executive
Directors on an exceptional basis at their discretion.
Deferred awards are subject to malus and clawback provisions as described in the notes to the
policy table on page 101.
Maximum potential value In accordance with the operation of the annual bonus.
Performance metrics In accordance with the operation of the annual bonus.
Application to broader
employee population
Approach is consistent for all employees across the Group who are awarded a sizeable bonus.
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98 Hiscox Ltd Report and Accounts 2020
Future policy table
Executive Director remuneration
Performance Share Plan (PSP)
Purpose and link to strategy To motivate and reward for the delivery of long-term objectives in line with business strategy.
To encourage share ownership among participants and align interests with shareholders.
To provide competitive compensation packages for senior employees.
Operation Awards are granted under, and governed by, the rules of the PSP as approved by shareholders
from time to time.
Share awards (typically structured as either conditional awards or nil cost options) are made at
the discretion of the Remuneration Committee.
Awards normally vest after a three-year period subject to the achievement of performance
conditions. An additional holding period, which is currently two years, may also apply.
Further details are set out on page 86.
Awards are generally subject to continued employment; however, awards may vest to leavers in
certain scenarios (for example, ‘good’ leaver circumstances).
Dividends (or equivalents) may accrue on vested shares prior to release. Awards are subject to
malus and clawback provisions as described in the notes to the policy table on page 101.
Maximum potential value Maximum annual grant of up to 250% of salary in respect of any one nancial year.
Performance metrics The performance conditions for awards are set to align with the long-term objectives of
the Company.
The Committee reviews the targets prior to each grant to ensure that they remain appropriate.
Currently, the performance measures are linked to the achievement of growth in net asset value
plus dividends, measured on a per-share basis, over the performance period. For 2021 awards,
an additional measure of relative TSR will apply to awards alongside growth in net asset value
plus dividends per share.
For delivery of the threshold hurdle, up to 20% of the relevant award will vest. For full vesting,
the stretch hurdle needs to be met in full.
The discretions available to the Committee in assessing the achievement of the performance
target are as set out in the notes to the policy table on page 101.
Where the Committee considers it appropriate to do so, under the plan rules the Committee is
able to modify performance criteria for outstanding awards on the occurrence of certain events
(for example, major disposal).
Application to broader
employee population
Participation in this plan is restricted to Executive Directors and other senior individuals.
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99Hiscox Ltd Report and Accounts 2020
Future policy table
Executive Director remuneration
Shareholding guidelines
Purpose and link to strategy To ensure Executive Directors are aligned with shareholder interests.
Operation Within ve years of becoming an Executive Director, individuals will normally be expected to have
acquired an interest in Hiscox shares valued at 200% of salary. Shares owned by the Executive
Director (and any connected person) count towards the guidelines as do shares subject to any
vested but unexercised PSP award (net of assumed taxes).
Executive Directors are normally expected to remain aligned with the interests of shareholders
for an extended period after leaving the Company. Executive Directors will typically be expected
to retain a shareholding at the level of the in-employment shareholding guideline for one year
(or the actual shareholding on stepping down, if lower) and at half of this amount for the following
year, unless the Committee determines otherwise in exceptional circumstances.
Maximum potential value N/A.
Performance metrics N/A.
Application to broader
employee population
Executive Directors are required to hold more shares than other senior managers.
Post-employment shareholding guidelines only apply to Executive Directors.
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100 Hiscox Ltd Report and Accounts 2020
Future policy table
Non Executive Director remuneration
General approach The total aggregate fees payable are set within the limit specied by the Company’s Bye-laws.
The fees paid are determined by reference to the skills and experience required by the Company
as well as the time commitment associated with the role. The decision-making process is
informed by appropriate market data. Non Executive Directors are not eligible for participation in
the Company’s incentive plans. Travel and other reasonable expenses incurred in the course of
performing their duties are reimbursed to Non Executive Directors (including any tax thereon
where these are deemed to be taxable benets). Non Executive Directors are included on the
directors and ofcers’ indemnity insurance.
The current fees payable to Non Executive Directors are set out on page 89.
Chairman The Chairman typically receives an all-inclusive fee in respect of the role. In addition to his fees
the Chairman may be provided with incidental benets, for example, private healthcare and
life assurance (including any tax thereon where these are deemed to be taxable benets).
The remuneration of the Chairman is determined by the Committee.
Non Executive Directors Non Executive Directors receive an annual fee in respect of their Board appointments together
with additional compensation for further duties (for example, Board Committee membership
and chairmanship). The fees for the Non Executive Directors (excluding the Chairman) are
determined by the Governance and Nominations Committee.
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101Hiscox Ltd Report and Accounts 2020
Notes to the policy table
Performance measures, target setting and assessment
The performance targets for the annual bonus and share
plan awards to Executive Directors are closely aligned
with the Company’s short-term and long-term objectives.
The intention is to provide a direct link between reward levels
and performance.
The Company operates a bonus pool approach for the annual
incentive. This ensures that both individual bonus levels and
overall spend are commensurate with the performance of the
Company. The Committee applies judgement based on a range
of factors (as described in the table on page 82) to ensure that
outcomes for Executive Directors are based on performance
in-the-round rather than on a formulaic outcome. The prot
pool approach currently used ensures that overall bonus
amounts are aligned to the performance of the Company
and remain appropriate and affordable.
PSP performance measures are intended to motivate and
reward to deliver long-term Company success. The Committee
considers performance metrics and targets prior to the grant of
each award to ensure that these remain suitable and relevant.
It is the intention of the Committee that the vesting of PSP
awards should normally reect the outcome of the performance
measures set, although the Committee has the ability to apply
independent judgement to ensure that the outcome is a fair
reection of the performance of the Company and individual
over the performance period. When making this judgement,
the Committee has scope to consider any such factors as it
deems relevant.
Detailed provisions
The Committee may make minor changes to this remuneration
policy to aid in its operation or implementation (for example,
for regulatory or administrative purposes), provided that any
such change is not to the material advantage of Directors.
The Committee may continue to operate the share awards
under the 2006 and 2016 PSP in accordance with the rules
(for example, the treatment of awards in the context of a
change of control or other forms of corporate restructure).
The Committee may continue to satisfy remuneration payments
and payments for loss of ofce (including the exercise
of any discretions available to the Committee in connection
with such payments) where the terms of the payment were:
p agreed before 15 May 2014 when the rst approved
remuneration policy came into effect;
p agreed before the policy set out above came into effect,
provided that the terms of the payment were consistent
with the shareholder-approved Directors’ remuneration
policy in force at the time they were agreed; or
p agreed at a time when the relevant individual was not
a Director of the Company and, in the opinion of the
Committee, the payment was not in consideration for
the individual becoming a Director of the Company.
For these purposes, such payments include the Committee
satisfying awards of variable remuneration.
Malus and clawback provisions
Deferred bonus awards and PSP awards granted for 2020
onwards are subject to malus and clawback provisions as
set out below. The Committee may, in its absolute discretion,
determine at any time prior to the vesting of an award to
reduce, defer, cancel or impose further conditions in the
following circumstances:
p a retrospective material restatement of the audited
nancial results of the Group for a prior period error in
accordance with IAS 8;
p an error in assessing a performance condition applicable
to the award or in the information or assumptions on
which the award was granted, or vests;
p actions of gross misconduct or material error, including
fraud, by the participant or their team;
p signicant reputational or nancial damage to the
Company (as a result of the participant’s conduct).
Annual bonus and PSP awards granted to Executive Directors
shall also be subject to clawback provisions for up to two years
from the date of vesting in the above circumstances.
The malus and clawback provisions that apply to awards made
prior to 2020 are as set out in the relevant remuneration policy
as at the date of award.
Recruitment policy
A new hire will ordinarily be remunerated in accordance with
the policy described in the table on the previous pages. In order
to dene the remuneration for an incoming Executive Director,
the Committee will take account of:
p prevailing competitive pay levels for the role;
p experience and skills of the candidate;
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p awards (shares or earned bonuses) and other elements
which will be forfeited by the candidate;
p transition implications on initial appointment; and
p the overall Hiscox approach.
A ‘buy-out’ payment/award may be necessary in respect of
arrangements forfeited on joining the Company. The size and
structure of any such buy-out arrangement will take account
of relevant factors in respect of the forfeited terms including
potential value, time horizons and any performance conditions
which apply. The objective of the Committee will be to
suitably limit any buy-out to the commercial value forfeited
by the individual.
On initial appointment (including interim Director
appointments) the maximum level of variable remuneration
(excluding any buy-outs) is capped at the maximum level set
out in the policy table on pages 94 to 100. Within these limits
and where appropriate the Committee may tailor the award
(for example, time frame, form, performance criteria)
based on the commercial circumstances. Shareholders
would be informed of the terms for any such arrangements.
Ordinarily, it would be expected that the package on
recruitment would be consistent with the usual ongoing
Hiscox incentive arrangements.
On the appointment of a new Non Executive Chairman or
Non Executive Director, the fees will normally be consistent
with the policy. Fees to Non Executives will not include share
options or other performance-related elements.
Service contracts
It is the Company’s policy that Executive Directors should
have service contracts with an indenite term which can be
terminated by the Company by giving notice not exceeding
12 months or the Director by giving notice of six months.
Non Executive Directors are appointed for a three-year term,
which is renewable, with three months’ notice on either side,
no contractual termination payments being due and subject
to re-election pursuant to the Bye-laws at the Annual General
Meeting. The contract for the Chairman is subject to a
six-month notice provision on either side.
The terms set out in the service contracts for the current
Executive Directors do not allow for any payments that
are not in line with this policy.
Policy on payment for loss of ofce
Subject to the execution of an appropriate general release
of claims an Executive Director may receive on termination
of employment by the Company:
1. Notice period of up to 12 months
In the normal course of events, an Executive will remain on
the payroll but may be placed on gardening leave for the
duration of the notice period (or until they leave early by
mutual agreement, whichever is sooner). During this period
they will be paid as normal, including base pay, pension
contributions (or cash allowance as appropriate) and other
benets (for example, healthcare).
In the event of a termination where Hiscox requests that the
Executive Director ceases work immediately, a payment
in lieu of notice may be made that is equal to xed pay,
pension entitlements and other benets (benets may
continue to be provided). Payments may be made in
instalments and would ordinarily be subject to mitigation
should the individual nd alternative employment during
the unexpired notice period.
2. Bonus payment for the nancial year of exit
The Committee may pay a bonus calculated in line with the
normal bonus scheme timings and performance metrics.
The bonus amount would normally be pro-rated depending
on the proportion of the nancial year which has been
completed by the time of the termination date.
3. Release of any deferred bonuses
All outstanding bonuses deferred from the annual
incentive scheme will normally be paid in full at the normal
vesting date.
4. Unvested Performance Share Plan awards
Treatment would be in accordance with the plan rules and
relevant grant documentation. The intended approach is
summarised below.
p Awards will vest in line with the normal plan vesting
date (unless the Committee determines otherwise).
Awards vest to the extent that the relevant
performance target is considered to have been met.
p The award will normally be pro-rated to reect the period
which has elapsed from the commencement of the
award to the date of termination unless the Committee
determines otherwise.
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If the departing Executive Director does not sign a release
of claims, they would normally be entitled to payments
dened under point 1 only. In the event that the Executive
is dismissed for gross misconduct, they would forfeit
any payments under UK and Bermuda employment law.
In the event of a voluntary resignation to join another
company, no payments would normally be made other
than remaining on the payroll, with associated benets,
during the contractual notice period of six months.
The Committee may also make a payment in respect of
outplacement costs, legal fees and costs of settling any
potential claims where appropriate.
5. Change of control
In the event of a change of control, outstanding PSP awards
will normally vest early to the extent that the performance
condition, as determined by the Committee in its discretion,
has been satised and unless the Committee determines
otherwise, would be pro-rated to reect the period which
has elapsed from the commencement of the award to the
date of the relevant corporate event.
Deferred bonus awards will vest in full. Outstanding
awards under all-employee share plans will be treated
in accordance with the relevant plan rules.
Consideration of employment conditions elsewhere
At Hiscox we encourage employees to share in the
Group’s success through competitive pay, prot and
performance-related bonuses, all employee share plans
and a generous benets package.
Salary reviews are applied consistently throughout the
Group, ensuring employees are paid fairly in line with their
responsibilities, experience and the market rate for the
role. All employees (including Executive Directors) are
encouraged to become Hiscox shareholders through our
SAYE schemes and have beneted from the strong share
price growth over recent years. Employees participate in a
discretionary prot-related bonus scheme, with the overall
level of payout based primarily on nancial performance.
For 2021, a separate individual and strategic element has
been introduced for employees below Board to incentivise
and reward individual contribution and delivery of key
strategic objectives.
Remuneration for the most senior executives, including the
CEO is more highly performance geared towards the longer
term in order to encourage delivery of strong returns across the
insurance cycle and create sustainable long-term value for our
shareholders. Senior employees participate in a performance
share plan with awards normally vesting after a three-year
period subject to the achievement of performance conditions.
An additional holding period applies for Executive Directors.
While the Committee did not consult directly with the broader
workforce on the remuneration policy for Executive Directors,
we have introduced a process by which employee views are
gathered on a range of topics and presented to the Board.
The Remuneration Committee also receives an update on
the broader workforce remuneration policies and practices
during the year which informs the Committee’s consideration
of the policy for Executive Directors.
Consideration of shareholder views
Hiscox regularly discusses remuneration policy matters with
a selection of shareholders. The Remuneration Committee
takes into consideration the range of views expressed in
making its decisions.
The Committee consulted with major shareholders during
2019 and took shareholders feedback into account when
nalising the revised 2020 policy. In anticipation of introducing
TSR as an additional performance metric for the PSP in 2021,
the Committee wrote to major shareholders, ISS, Glass Lewis
and the Investment Association. All responses received were
positive and no major concerns were raised.
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MaximumMax with
share price
appreciation
On target
100%
722
Below target
29%
39%
38%
5,136
32%
2,520
4,319
45%
17%
14%
38%
48%
Illustration of application of the remuneration policy
(£000s)
Chief Executive Chief Financial Ofcer Chief Underwriting Ofcer
Long-term variable remuneration
Annual variable remuneration
Fixed remuneration
100%
556
29%
39%
32%
1,941
3,326
45%
17%
14%
38%
48%
MaximumMax with
share price
appreciation
On target
Below
target
3,955
38%
100%
550
25%
46%
33%
53%
3,822
45%
14%
12%
MaximumMax with
share price
appreciation
On targetBelow target
43%
4,452
29%
2,186
The charts above have been compiled using the following assumptions.
Fixed remuneration Fixed reward (base salary, benets and retirement benet).
p Salary with effect from 1 April 2020.
p Benets as received during 2020, as disclosed in the Executive Director remuneration
table on page 80.
p Retirement benet as received during 2020, as disclosed in the Executive Director
remuneration table on page 80.
Variable remuneration Assumptions have been made in respect of the annual incentive and the PSP for the purpose
of these illustrations.
p Annual incentive: the amounts shown in the scenarios are for illustration only. In practice,
the award would be determined based on a range of performance factors and therefore
vary depending on the circumstances. The maximum award reects the incentive caps
described at the beginning of this report.
p PSP: scenario analysis assumes awards are granted at the maximum level set out in the
policy table on page 98. In practice, award levels are determined annually and are not
necessarily granted at the plan maximum every year.
105Hiscox Ltd Report and Accounts 2020
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Performance scenarios
Below target performance Fixed reward only.
On target performance Fixed reward plus variable pay for the purpose of illustration as follows.
p Annual incentive: assume a bonus equivalent to 50% of the maximum opportunity.
p PSP: assume vesting of 50% of the maximum award.
Maximum performance Fixed reward plus variable pay for the purpose of illustration as follows.
p Annual incentive: maximum bonus equivalent to 300% of salary for the CEO and CFO
and 400% of salary for the CUO.
p PSP: vesting of 100% of the maximum award.
Maximum performance with
share price appreciation
Fixed reward plus variable pay for the purpose of illustration as follows.
p Annual incentive: maximum bonus equivalent to 300% of salary for the CEO and CFO
and 400% of salary for the CUO.
p PSP: vesting of 100% of the maximum award plus assumed share price growth of 50%.
106 Hiscox Ltd Report and Accounts 2020
107Hiscox Ltd Report and Accounts 2020
Be ambitious,
accountable, pragmatic,
tenacious and proudly
high-achieving.
Chapter 5:
Shareholder information
5
Owning our contributions to the
local community
Contributing to the communities in
which we live and work has long been
a feature of our business; it is important
to us, and it is reected in our values.
The tragedies resulting from Covid-19
have underscored this and we have
been pleased to play our part and ‘own’
our commitment to our communities
during a time of need. During 2020 we
pledged over $9million to support a
range of causes affected by the global
pandemic, and our employees found
new ways to give back – with many
choosing to use the time they would
have previously spent commuting to
volunteer locally.
The impact of our charitable donations
has been diverse and far-reaching;
from the ventilators and essential PPE
we helped purchase for hospitals in
Bermuda and Guernsey, to the 630
meals we helped deliver to vulnerable
New Yorkers or the 9,710 meals provided
to hard-working NHS staff. Our impact
has also been realised through the
many meaningful ways that individual
employees have contributed – volunteers
like Olivia, a London-based staff member
who used her extra time during lockdown to
become a career mentor to under-served
young people in her local area.
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108 Hiscox Ltd Report and Accounts 2020
Directors’ report
The Directors have pleasure in submitting their Annual Report
and consolidated nancial statements for the year ended
31December2020.
Management report
The Company is a holding company for subsidiaries involved
in the business of insurance and reinsurance in Bermuda, the
USA, the UK, Guernsey, Europe and Asia. The information
found on pages 21 to 33, 36 to 39, 122 to 186 and 188 fulls
the requirements of the management report as referred
to in Chapter 4 of the Disclosure Guidance and Transparency
Rules (DTR). This includes additional explanation of the
gures detailed in the nancial statements and the ofce
locations of the Group in different countries.
The key performance indicators are shown on pages
4 to 5. Details of the use of nancial instruments are set
out in note 19 to the consolidated nancial statements.
An analysis of the development and performance of the
business during the nancial year, its position at the end
of the year, any important events since the end of the year
and the likely future development can be found within the
Chief Executive’s report on pages 21 to 33. The Chief
Executive’s report also describes the main trends and
factors likely to affect the future development, performance
and position of the Company’s business. A description of
the Company’s strategy and business model is set out
on pages 10 to 11. A description of the principal risks and
uncertainties and how they are managed or mitigated can
be found in the key risks section on page 12 and the risk
management section on pages 36 to 39. In addition,
note 3 to the consolidated nancial statements provides
a detailed explanation of the principal risks which are
inherent to the Group’s business and how those risks
are managed.
Compliance with the UK Corporate Governance Code 2018
(the Code)
Details of how the Company has applied the principles set
out in the Code and the extent to which it has complied with
the provisions of the Code are set out on pages 63 to 67.
Emerging and principal risks
The conrmation required by provision 28 of the Code in
relation to the Board’s assessment of the Company’s
emerging and principal risks can be found on page 12.
Corporate governance statement
The information that fulls the requirements of the corporate
governance statement as referred to in DTR 7.2 can be found
on pages 57 to 62 in this report.
Diversity
The diversity of the business is outlined in the Nominations
and Governance Committee report on pages 68 to 70.
Financial results
The Group delivered a pre-tax loss for the year of
$268.5million (2019:prot of $53.1million). Detailed results
for the year are shown in the consolidated income statement
on page 122.
Going concern
A review of the nancial performance of the Group is set
out in the Chief Executive’s report on pages 21 to 33.
The nancial position of the Group, its cash ows and
borrowing facilities are included in the capital section on
pages 34 to 35. The Group has considerable nancial
resources and a well-balanced book of business.
The Board has reviewed the Group’s current and forecast
solvency and liquidity positions for the next twelve months
and beyond. As part of the consideration of the
appropriateness of adopting the going concern basis,
the Directors use scenario analysis and stress testing to
assess the robustness of the Group’s solvency and liquidity
positions. To make the assessment, the Group constructed
a combined scenario which included applying material
sensitivities to (re)insurance claims relating to Covid-19,
modelling a signicant catastrophe loss and a default in the
Group’s reinsurance programme. An aggregated scenario
such as this, and the sequence of events it involves, is
considered to be remote and there are mitigating recovery
actions that have been and can be taken further to restore
the capital position to the Group’s target range.
In undertaking this analysis, no material uncertainty in
relation to going concern has been identied. This is due
to the Group’s strong capital and liquidity positions,
which provide considerable resilience to these shocks,
underpinned by the Group’s approach to risk management
which is 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 nancial statements.
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Directors’ report
109Hiscox Ltd Report and Accounts 2020
Longer-term viability statement
The preparation of the longer-term viability statement
includes an assessment of the Group’s long-term prospects
in addition to an assessment of the ability to meet future
commitments and liabilities as they fall due.
It is fundamental to the Group’s longer-term strategy that
the Directors manage and monitor risk, taking into
account all key risks the Group faces, including insurance
risks, so that it can continue to meet its obligations to
policyholders. The Group is also subject to extensive
regulation and supervision including Bermuda Solvency
Capital Requirement.
Against this background, the Directors have assessed
the prospects of the Group in accordance with provision
31 of the UK Corporate Governance Code 2018, with
reference to the Group’s current position and prospects,
its strategy, risk appetite and key risks, as detailed in the
key risks section on page 12 and the risk management
section on pages 36 to 39, as well as note 3 to the
consolidated nancial statements.
The assessment of the Group’s prospects by the Directors
covers the three years to 2023 and is underpinned by
management’s 2021-2023 business plan which includes
projections of the Group’s capital, liquidity and solvency
and reects the Group’s risk prole of a portfolio of
diversied short-tailed and medium-tailed insurance
liabilities. The Board acknowledges in a Covid-19
environment the certainty of those plans, the potential
uctuations in the global economy, the impact on
competitors and customer behaviours in a post-Covid-19
world remains uncertain. In making the viability statement,
the Board carried out, as part of the own risk and solvency
assessment (ORSA) process, a robust assessment
using scenario analysis and stress testing to consider the
Group’s capacity to respond to a series of relevant nancial,
insurance-related or operational shocks should future
circumstances or events differ from these current
assumptions. These allow the Board to review and
challenge the risk management strategy and consider
potential mitigating actions. Based on these assessments,
the Board conrms that it has reasonable expectation
that the Group will be able to continue in operation and
meet its liabilities as they fall due over the three-year
assessment period.
Dividends
In the face of the uncertainty arising from Covid-19 and the
losses it generated, the Board took the decision not to declare
a 2019 nal or 2020 interim dividend. In view of the full year
loss and a desire to have capital to deploy into a strong market,
the Board has also taken the decision not to declare a 2020
nal dividend for shareholder approval. The Board believes
that as our business delivers the 2021 business plan and as
prots ow through, it expects, subject to the Board being
satised that it is appropriate to do so, to resume paying
dividends with the 2021 interim results.
Bye-laws
The Company’s Bye-laws contain no specic provisions
relating to their amendment and any such amendments are
governed by Bermuda Company Law and subject to the
approval of shareholders in a general meeting. A copy of
the Company’s Bye-laws is available for inspection at the
Company’s registered ofce.
Share capital
Details of the structure of the Company’s share capital and
changes in the share capital during the year are disclosed in
note 22 to the consolidated nancial statements. The ordinary
shares of 6.5p each are the only class of shares presently in
issue and carry voting rights. There is power under Bye-law 45
of the Company’s Bye-laws for voting rights to be suspended
if calls on shares are unpaid. However, there are no nil or
partly paid shares in issue on which calls could be made.
The Bye-laws also allow the Company to investigate interests
in its shares and apply restrictions including suspending
voting rights where information is not provided. No such
restrictions are presently in place. The Company was
authorised by shareholders at the 2020 Annual General
Meeting to purchase in the market up to 10% of the Company’s
issued ordinary shares. No shares have been bought back
under this authority as at the date of this report.
Hiscox Ltd was authorised to allot shares in 2020. With respect
to the share placing undertaken in 2020, as previously
disclosed, the level of discount achieved was 6.1% and the
net proceeds raised were £375million. This has provided
additional exibility throughout the year to respond to growth
opportunities and rate improvement, particularly in big-ticket
lines. The percentage increase in issued share capital due to
non pre-emptive issuance for cash over the three-year period
preceding the issue was 19.99%.
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Chapter 5 107
Shareholder information
Directors’ report
110 Hiscox Ltd Report and Accounts 2020
Directors
The names and details of all Directors of the Company who
served during the year and up to the date of this report are set
out on pages 52 to 53. Details of the Chairman’s professional
commitments are included in his biography on page 52.
The Bye-laws of the Company govern the appointment and
replacement of Directors. In accordance with the Code,
the Directors will submit themselves for re-election at the
Annual General Meeting. Biographical details of the Directors
are set out on pages 52 to 53, as are the reasons why the
Board believes their contribution is (and continues to be)
important to the Company’s long-term sustainable success.
This information will also be set out in the circular which will
accompany the notice of Annual General Meeting.
Major interests in shares
The Company has been notied of the interests of 5% or more
of voting rights in its ordinary shares, which are outlined in the
table below.
Any acquisitions or disposals of major shareholdings notied to
the Company in accordance with DTR 5.1 are announced and
those announcements are available on the Company’s website,
hiscoxgroup.com.
Major interests in shares
The Company has been notied of the following interests
of 5% or more of voting rights in its ordinary shares:
Number
of shares
% of issued
share capital
as at
18 February
2 0 2 1*
Sun Life Financial Group 30,599,289 8.83
The Capital Group Companies, Inc. 29,757,411 8.59
Fidelity Management & Research 26,481,266 7.64
BlackRock, Inc. 22,104,652 6.38
* There were 346,431,494 shares in issue (excluding Treasury shares) as at
18 February 2021.
As at 1 March 2021, no changes have been notied to the Company.
Political donations and charitable contributions
The Group made no political donations during the year
(2019:$nil). Information concerning the Group’s charitable
activities is contained in the environmental, social and
governance (ESG) section on pages 42 to 49 and at
hiscoxgroup.com/responsibility.
Climate-related matters
In preparing and signing off this report, the Board has considered
the relevance of material climate-related matters, including
climate change and transitional risks. Climate-related matters are
regularly discussed by the Board, and most recently this included
Board approval of a new ESG exclusions policy for underwriting
and investments. For more information, see page 44.
Power of Directors
The powers given to the Directors are contained in the
Company’s Bye-laws and are subject to relevant legislation
and, in certain circumstances (including in relation to the
issuing and buying back by the Company of its shares),
approval by shareholders in a general meeting. At the
Annual General Meeting in 2020, the Directors were granted
authorities to allot and issue shares and to make market
purchases of shares and intend to seek renewal of these
authorities in 2021.
Disclosure under LR 9.8.4 of the Listing Rules
The information that fulls the reporting requirements
relating to the following matters can be found at the pages
identied below.
Details of long-term
incentive schemes
Annual report on remuneration
(page 84)
Allotment of shares for
cash pursuant to employee
share schemes
Note 22 to the consolidated
nancial statements on
employee share schemes
(page 169)
Annual General Meeting
The notice of the Annual General Meeting, to be held on
13May2021, will be contained in a separate circular to be
sent to shareholders. The deadline for submission of proxies
is 48 hours before the meeting.
By order of the Board
Marc Wetherhill
Company Secretary
Chesney House
96 Pitts Bay Road
Pembroke HM 08
Bermuda
3 March 2021
AGM
The notice of the Annual General Meeting
will be held on 13May2021.
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Chapter 5 107
Shareholder information
111Hiscox Ltd Report and Accounts 2020
Directors’ responsibilities
statement
The Board is responsible for ensuring the maintenance of
proper accounting records which disclose with reasonable
accuracy the nancial position of the Group. It is required
to ensure that the nancial statements present a fair view for
each nancial period. The Directors explain in the Annual
Report their responsibility for preparing the Annual Report
and Accounts.
We conrm that to the best of our knowledge:
— the nancial statements, prepared in accordance with
the International Financial Reporting Standards (IFRS) as
adopted by the European Union, give a true and fair view,
in all material respects, the assets, liabilities, nancial
position and prot or loss of the Company and the
undertakings included in the consolidation taken as
a whole; and
— the management report includes a fair review of the
development and performance of the business and the
position of the Company and the undertakings included
in the consolidation taken as a whole, together with a
description of the principal risks and uncertainties that
they face.
The Directors responsible for authorising the responsibility
statement on behalf of the Board are the Chairman,
Robert Childs, and the Chief Financial Ofcer, Hamayou
Akbar Hussain. The statements were approved for issue
on 3March2021.
The Directors consider that the Annual Report and Accounts,
taken as a whole, is fair, balanced and understandable and
provides the information necessary for shareholders to assess
the Company’s and the Group’s position, performance,
business model and strategy.
Advisors
Hiscox Ltd
Secretary
Marc Wetherhill
Registered ofce
Chesney House
96 Pitts Bay Road
Pembroke HM 08
Bermuda
Registered number
38877
Auditors
PricewaterhouseCoopers Ltd.
Washington House
4th Floor, 16 Church Street
Hamilton HM 11
Bermuda
Solicitors
Appleby
Canon’s Court
22 Victoria Street
PO Box HM 1179
Hamilton HM EX
Bermuda
Bankers
HSBC Bank Bermuda Limited
37 Front Street
Hamilton HM 11
Bermuda
Stockbrokers
UBS Limited
1 Finsbury Avenue
London EC2M 2PP
United Kingdom
Registrars
Equiniti (Jersey) Limited
c/o Equiniti Limited
Aspect House
Spencer Road
Lancing
West Sussex BN99 6DA
United Kingdom
112 Hiscox Ltd Report and Accounts 2020
113Hiscox Ltd Report and Accounts 2020
Chapter 6:
Financial summary
6
By adopting a
commercial mindset,
we will manage costs
and control tedious
bureaucracy.
Owning our adoption of big-ticket
digital trading
Lockdown and social distancing
measures meant that many businesses
had to adapt to a digital trading
environment for which they were
unprepared. In the London Market,
where efforts to modernise were already
under way, the Lloyd’s Placing Platform
Limited (PPL) became the dominant way
in which to write big-ticket business in
London. Hiscox has long been a strong
supporter of the push towards electronic
trading and was an early adopter of PPL
as a multi-year, market-wide initiative
chaired by our Group CEO.
PPL enables brokers and insurers to
quote, negotiate, bind and endorse
business digitally, and since its inception
Hiscox has consistently exceeded the
phased targets towards total market
adoption. When the pandemic hit,
our London Market operations team
developed new training to upskill and
empower our underwriters, and the
number of risks bound online went
from 70% in the rst quarter of 2020 to
over 90% in the third quarter. Taking
ownership of the need to transact digitally
with minimal disruption to brokers and
clients supports our aspiration of
being digital where possible, but with
a human touch where it matters most.
114 Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 5 107
Shareholder information
Chapter 6 113
Financial 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 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 31December2020, and their
consolidated nancial performance and their consolidated
cash ows for the year then ended in accordance with
International Financial Reporting Standards (IFRS) as
adopted by the European Union (EU).
What we have audited
The Group’s consolidated nancial statements comprise:
A the consolidated income statement for the year ended
31December2020;
A the consolidated statement of comprehensive
income for the year ended 31December2020;
A the consolidated balance sheet as at
31December2020;
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 the notes to the consolidated nancial statements,
which include signicant accounting policies and
other explanatory information.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (ISAs). Our responsibilities under
those standards are further described in the ‘auditor’s
responsibilities for the audit of the consolidated nancial
statements’ section of our report.
We believe that the audit evidence we have obtained
is sufcient and appropriate to provide a basis for
our opinion.
Independence
We are independent of the Group in accordance with the
International Code of Ethics for Professional Accountants
(including International Independence Standards)
issued by the International Ethics Standards Board
for Accountants (IESBA Code) and the ethical requirements
of the Chartered Professional Accountants of Bermuda
Rules of Professional Conduct (CPA Bermuda Rules) that
Our audit approach
Overview
Materiality
Group
scoping
Key audit
matters
A Overall group materiality: $30.5million, which represents
0.75% of the gross earned premium for the year ended
31December2020.
A We performed full scope audit procedures over
ve components.
A For certain other components, we performed audit
procedures over specied nancial statement line
item balances.
A For the remaining components that were not
inconsequential, analytical procedures were
performed by the Group engagement team.
A The impact of Covid-19 on the Group.
A Valuation of gross incurred but not reported (IBNR) loss
reserves and the associated reinsurers’ share of IBNR
loss reserves.
A Assessment of the carrying value of certain nite lived
intangible assets.
115Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
Independent
auditor’s report
are relevant to our audit of the consolidated nancial
statements in Bermuda. We have fullled our other ethical
responsibilities in accordance with the IESBA Code and the
ethical requirements of the CPA Bermuda Rules.
Audit scope
As part of designing our audit, we determined materiality
and assessed the risks of material misstatement in the
consolidated nancial statements. In particular, we considered
where management made subjective judgements; for
example, in respect of signicant accounting estimates that
involved making assumptions and considering future events
that are inherently uncertain. As in all of our audits, we also
addressed the risk of management override of internal controls,
including, among other matters, consideration of whether
there was evidence of bias that represented a risk of material
misstatement due to fraud.
How we tailored our Group audit scope
We tailored the scope of our audit in order to perform sufcient
work to enable us to provide an opinion on the consolidated
nancial statements as a whole, taking into account the
structure of the Group, the accounting processes and controls,
and the industry in which the Group operates.
The Group is structured into four segments (see note 4 to the
consolidated nancial statements) and is a consolidation of
over 50 separate legal entities.
The Group is a global specialist insurer and reinsurer, and its
operations primarily consist of the legal entity operations in
the United Kingdom, Europe, the United States and Bermuda.
A full scope audit was performed for ve components located
in the United Kingdom, the United States and Bermuda.
Financial statement line item audit procedures were also
performed over components in the United Kingdom, United
States and Bermuda. Taken together this work provided over
85% coverage of the Group’s gross earned premium and over
80% of the Group’s total assets.
The ve full scope audit components are:
i) Hiscox Dedicated Corporate Member Syndicate no. 33;
ii) Hiscox Dedicated Corporate Member Syndicate no. 3624;
iii) Hiscox Insurance Company Limited;
iv) Hiscox Insurance Company Inc.; and
v) the parent company, Hiscox Ltd (including consolidation).
For certain other components, we identied account
balances which were considered to be signicant in size or
audit risk at the nancial statement line item level in relation
to the consolidated nancial statements, and performed
nancial statement line item audit procedures over these
specied balances. Analytical procedures over the remaining
components that were not inconsequential were performed
by the Group engagement team.
In establishing the overall approach to the Group audit, we
determined the type of work that needed to be performed at
the reporting units by us, as the Group engagement team, or
by the component audit teams within the PwC United Kingdom,
PwC United States and PwC Bermuda rms operating under
our instruction. Where the work was performed by component
audit teams, we determined the level of involvement we needed
to have in the audit work at those reporting units to be able to
conclude whether sufcient 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 at
the Group level, as described above, gave us the evidence we
needed for our opinion on the consolidated nancial statements
as a whole.
116 Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
Independent
auditor’s report
Key audit matters
Key audit matters are those matters that, in the auditor’s
professional judgement, were of most signicance in the audit
of the consolidated nancial statements of the current period
and include the most signicant assessed risks of material
misstatement (whether or not due to fraud) identied by the
auditors, including those which had the greatest effect on:
the overall audit strategy; the allocation of resources in the
audit; and directing the efforts of the engagement team.
These matters, and any comments we make on the results
of our procedures thereon, were addressed in the context of
our audit of the consolidated nancial statements as a whole,
and in forming our opinion thereon, and we do not provide a
separate opinion on these matters.
This is not a complete list of all risks identied by our audit.
‘The impact of Covid-19 on the Group’ and ‘assessment of the
carrying value of certain nite lived intangible assets’ are new
key audit matters this year. The prior year key audit matter in
respect of uncertain tax positions was included in ‘the impact
of Covid-19 on the Group’. Otherwise, the key audit matters
that follow are consistent with last year.
Overall Group materiality
How we determined it
Rationale for the materiality
benchmark applied
$30.5 million
0.75% of gross earned
premium for the year ended
31December2020.
In determining our materiality,
we have considered nancial
metrics which we believe to be
relevant to the primary users
of the consolidated nancial
statements. We concluded
gross earned premium was
the most relevant benchmark
to these users.
Gross earned premium
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.
Materiality
The scope of our audit was inuenced by our application
of materiality. An audit is designed to obtain reasonable
assurance whether the consolidated nancial statements
are free from material misstatement. Misstatements may
arise due to fraud or error. They are considered material if,
individually or in aggregate, they could reasonably be
expected to inuence the economic decisions of users
taken on the basis of the consolidated nancial statements.
Based on our professional judgement, we determined certain
quantitative thresholds for materiality, including the overall
Group materiality for the consolidated nancial statements
as a whole as set out in the table below. These, together with
qualitative considerations, helped us to determine the scope
of our audit and the nature, timing and extent of our audit
procedures and to evaluate the effect of misstatements, both
individually and in aggregate, on the consolidated nancial
statements as a whole.
We agreed with the Audit Committee that we would report
to them misstatements identied during our audit above
$1.5 million, as well as misstatements below that amount
that, in our view, warranted reporting for qualitative reasons.
117Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
Independent
auditor’s report
Key audit matter
1. The impact of Covid-19 on the Group
Refer to note 2 and 3.5 to the consolidated nancial statements
for related disclosures.
The impact of Covid-19 on the Group has been signicant and
wide ranging. In particular, the Group has:
A experienced an increase in claims activity resulting in
the establishment of substantial Covid-19-related loss
reserves (see key audit matter 2 on page 118);
A responded to operational challenges brought about by
remote working and travel restrictions (see uncertain tax
positions below);
A assessed the potential impact of Covid-19 on other areas
of the consolidated nancial statements such as the
carrying value of certain nite lived intangible assets
(see key audit matter 3 on page 119); and
A assessed the impact of Covid-19 on the Group’s ability
to continue as a going concern (see the impact
of Covid-19 on going concern below).
Uncertain tax positions
The Group recognises provisions, or determines it appropriate
not to recognise provisions, for uncertain tax positions based
on facts and circumstances at the balance sheet date.
The on-going pandemic has increased residency and
permanent establishment (PE) risk, given the difculties
in relation to travel. The potential impact of a successful
challenge on the Group’s uncertain tax positions by either
HMRC or the IRS is signicant and as a consequence this
was a specic focus area of our audit.
The impact of Covid-19 on going concern
The Group prepares its consolidated nancial statements
using IFRS as adopted by the EU on a going concern basis of
accounting. Management’s assessment of going concern is
dependent on signicant judgement and can be inuenced by
management bias. Given the impacts of Covid-19 as described
above our audit focused on management’s assessment of
going concern.
How our audit addressed the key audit matter
In performing our detailed audit work over uncertain tax
positions (specically in relation to the Group’s residency and
PE risk) and management’s going concern assessment, in
light of Covid-19, we performed the following work.
Uncertain tax positions
With the assistance of our PwC tax dispute specialists, we
obtained, critically assessed and challenged management’s
residency and permanent establishment documentation and
supporting evidence, paying particular attention to the impact,
and management of, Covid-19 travel disruption.
The results of our procedures indicated that management’s
position in relation to residency and PE risk was supported
by the evidence we obtained.
The impact of Covid-19 on going concern:
We obtained management’s going concern assessment
which considered the Group’s capital, solvency and
liquidity positions. We validated the analysis to supporting
documentation and assessed management’s scenarios
whereby they considered plausible downside sensitivities.
We performed further sensitivity analysis on management’s
assessment and assessed the impact on the Group’s capital,
solvency, liquidity and debt covenants.
We also assessed the disclosures made by management in
respect of going concern.
The results of our procedures indicated that management’s
application of the going concern basis of accounting and
the associated disclosures within the consolidated nancial
statements were supported by the evidence we obtained.
118 Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
Independent
auditor’s report
Key audit matter
2. Valuation of gross incurred but not reported (IBNR) loss
reserves and the associated reinsurers’ share of IBNR
loss reserves
Refer to note 2.13, 2.21 and 23 to the consolidated nancial
statements for disclosures of related accounting policies
and balances.
Total gross IBNR loss reserves and the associated reinsurers’
share of IBNR loss reserves are material estimates in the
consolidated nancial statements and as at 31December2020
amount to $4,572billion and $2,228billion respectively.
The methodologies and assumptions used to develop gross
IBNR loss reserves and the reinsurers’ share of IBNR loss
reserves involves a signicant degree of judgement. As a result,
we focused on this area as the valuation can be materially
impacted by numerous factors including:
A the underlying volatility attached to estimates for
certain classes of business, where small changes in
assumptions can lead to large changes in the levels
of the estimate held;
A the risk of inappropriate assumptions used in
determining current year estimates. Given that limited
data is available, especially for ‘long-tailed’ classes
of business, there is greater reliance on expert
judgement in management’s estimation; and
A the risk that key assumptions in respect of natural
catastrophes and other large claims losses, including
those reserving estimates associated with classes of
business exposed to claims and potential claims arising
from Covid-19, are inappropriate. There is signicant
judgement involved in these loss estimates, particularly
as they are often based on limited data.
How our audit addressed the key audit matter
We have understood, evaluated and tested the design and
operational effectiveness of key controls in place in respect of
the valuation of gross IBNR loss reserves and the associated
reinsurers’ share of IBNR loss reserves.
This work, supplemented with tests of detail, included:
A reviewing and testing the reconciliation of data from
the underlying policy administration systems to the data
used in the actuarial projections;
A testing the completeness and accuracy of premiums
and claims data used in the actuarial projections;
A testing the completeness and accuracy of policy
and claims data, where applicable, used to establish
Covid-19, natural catastrophe and other large loss
reserves; and
A testing to ensure gross IBNR loss reserves, as a
component of insurance liabilities, and the associated
reinsurers’ share of IBNR loss reserves were reviewed,
approved and reconciled to the consolidated nancial
statements.
In performing our detailed audit work over the valuation of
gross IBNR loss reserves and the associated reinsurer’s
share of IBNR loss reserves we used PwC actuarial
specialists, where appropriate. Our procedures included:
A developing independent point estimates for classes
of business considered to be higher risk, particularly
focusing on the largest and most uncertain estimates,
as at 30September2020 and performing roll-forward
testing to 31December2020;
A testing, for certain other classes of business (including
those impacted by Covid-19, natural catastrophes and
other large claims), the methodology and assumptions
used by management to derive the gross IBNR loss loss
reserves, and the associated reinsurer’s share of IBNR
loss reserves;
A performing analytical review procedures over the
remaining classes of business to evaluate gross IBNR
loss reserves and the associated reinsurer’s share of
IBNR loss reserves; and
A evaluating the appropriateness of the booked gross
IBNR loss reserve margin, and the associated
reinsurer’s share, taking into account estimation
uncertainty inherent in the underlying insurance
business, including testing the sensitivity of loss reserves.
The results of our procedures indicated that the valuation
of gross IBNR loss reserves and the associated reinsurers’
share of IBNR loss reserves were supported by the evidence
we obtained.
119Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
Independent
auditor’s report
Key audit matter
3. Assessment of the carrying value of certain nite lived
intangible assets
Refer to note 2.5, 2.9, and 12 to the consolidated nancial
statements for disclosures of related accounting policies
and balances.
The carrying value of nite lived intangible assets (software
development costs) amounts to $241.9million as at
31December2020. Management considered whether
or not there was an indicator of impairment in respect of
these assets.
Where management undertook an impairment analysis, they
performed recoverable amount (i.e. value-in-use) calculations
using future cashow forecasts. These calculations include
a number of assumptions and associated judgements.
The recoverable amount of the associated nite lived
intangible assets was compared to the book value in
determining whether or not an impairment was required.
How our audit addressed the key audit matter
Our procedures in relation to management’s assessment
of the carrying value of certain nite lived intangible assets
(software development costs) as at 31December2020
included the following:
A performing an independent assessment of
impairment indicators, challenging management’s
assessment accordingly;
A testing the calculation of the recoverable amount
for certain nite lived intangible assets for which an
impairment indicator was present. This comprised:
A obtaining the supporting cashow forecasts,
agreeing them to Board approvals, assessing
management’s track record of forecast accuracy
and considering the impact of the current
economic environment;
A performing sensitivity analysis over key assumptions
and considering the likelihood of those outcomes;
A evaluating the discount rate applied, with the
assistance of our PwC valuation specialists;
A re-calculating the mathematical accuracy of
management’s calculations; and
A comparing the nal recoverable amount to the
associated carrying value of that asset.
The results of our procedures indicated that the carrying value
of certain nite lived intangible assets (software development
costs) were supported by the evidence we obtained.
120 Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 5 107
Shareholder information
Chapter 6 113
Financial summary
Independent
auditor’s report
Other information
Management is responsible for the other information.
The other information comprises the Report and Accounts
(but does not include the consolidated nancial statements
and our auditor’s report thereon).
Except as noted in the ‘report on other legal and regulatory
requirements’ section, our opinion on the consolidated
nancial statements does not cover the other information and
we do not express any form of assurance conclusion thereon.
In connection with our audit of the consolidated nancial
statements, our responsibility is to read the other information
identied above and, in doing so, consider whether the other
information is materially inconsistent with the consolidated
nancial statements or our knowledge obtained in the audit,
or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there
is a material misstatement of this other information, we are required
to report that fact. We have nothing to report in this regard.
Responsibilities of management and those charged with
governance for the consolidated nancial statements
Management is responsible for the preparation and fair
presentation of the consolidated nancial statements
in accordance with International Financial Reporting
Standards as adopted by the EU and for such internal control
as management determines is necessary to enable the
preparation of consolidated nancial statements that are free
from material misstatement, whether due to fraud or error.
In preparing the consolidated nancial statements, management
is responsible for assessing the Group’s ability to continue as
a going concern, disclosing, as applicable, matters related to
going concern and using the going concern basis of accounting
unless management either intends to liquidate the Group or to
cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing
the Group’s nancial reporting process.
Auditor’s responsibilities for the audit of the consolidated
nancial statements
Our objectives are to obtain reasonable assurance about
whether the consolidated nancial statements as a whole
are free from material misstatement, whether due to fraud
or error, and to issue an auditor’s report that includes our
opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance
with ISAs will always detect a material misstatement when it
exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they
could reasonably be expected to inuence the economic
decisions of users taken on the basis of these consolidated
nancial statements.
As part of an audit in accordance with ISAs, we exercise
professional judgement and maintain professional scepticism
throughout the audit. We also:
A identify and assess the risks of material misstatement of the
consolidated nancial statements, whether due to fraud
or error, design and perform audit procedures responsive
to those risks, and obtain audit evidence that is sufcient
and appropriate to provide a basis for our opinion. The
risk of not detecting a material misstatement resulting
from fraud is higher than for one resulting from error, as
fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control;
A obtain an understanding of internal control relevant to
the audit in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the
Group’s internal control;
A evaluate the appropriateness of accounting policies used
and the reasonableness of accounting estimates and
related disclosures made by management;
A conclude on the appropriateness of management’s use
of the going concern basis of accounting and, based
on the audit evidence obtained, whether a material
uncertainty exists related to events or conditions that may
cast signicant doubt on the Group’s ability to continue
as a going concern. If we conclude that a material
uncertainty exists, we are required to draw attention
in our auditor’s report to the related disclosures in the
consolidated nancial statements or, if such disclosures
are inadequate, to modify our opinion. Our conclusions
are based on the audit evidence obtained up to the date
of our auditor’s report. However, future events or
conditions may cause the Group to cease to continue
as a going concern;
A evaluate the overall presentation, structure and content
of the consolidated nancial statements, including the
disclosures, and whether the consolidated nancial
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Independent
auditor’s report
statements represent the underlying transactions and
events in a manner that achieves fair presentation; and
A obtain sufcient appropriate audit evidence regarding
the nancial information of the entities or business
activities within the Group to express an opinion on the
consolidated nancial statements. We are responsible for
the direction, supervision and performance of the Group
audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance
regarding, among other matters, the planned scope and
timing of the audit and signicant audit ndings, including
any signicant deciencies in internal control that we identify
during our audit.
We also provide those charged with governance with a
statement that we have complied with relevant ethical
requirements regarding independence, and to communicate
with them all relationships and other matters that may
reasonably be thought to bear on our independence, and
where applicable, actions taken to eliminate threats or
safeguards applied.
From the matters communicated with those charged with
governance, we determine those matters that were of most
signicance in the audit of the consolidated nancial statements
of the current period and are therefore the key audit matters.
We describe these matters in our auditor’s report unless law
or regulation precludes public disclosure about the matter or
when, in extremely rare circumstances, we determine that a
matter should not be communicated in our report because
the adverse consequences of doing so would reasonably be
expected to outweigh the public interest benets of
such communication.
Report on other legal and regulatory requirements
Going concern
The Directors have concluded that it is appropriate to adopt
the going concern basis in preparing the consolidated nancial
statements, as explained on page 108. The going concern basis
presumes that the Group has adequate resources to remain in
operation, and that the Directors intend it to do so, for at least one
year from the balance sheet date. As part of our audit we have
concluded that the Directors’ use of the going concern basis is
appropriate. However, because not all future events or conditions
can be predicted, these statements are not a guarantee as to
the Group’s ability to continue as a going concern.
Directors’ remuneration
The Company voluntarily prepares a report on Directors’
remuneration in accordance with the provisions of the UK
Companies Act 2006. The Directors have requested that we
audit the part of the report on Directors’ remuneration specied
by the UK Companies Act 2006 to be audited as if the Company
were a UK registered company.
In our opinion, the part of the report on Directors’ remuneration
to be audited has been properly prepared in accordance with
the UK Companies Act 2006.
Corporate governance statement
Under the United Kingdom’s Listing Rules we are required
to review the part of the corporate governance statement on
pages 63 to 67 relating to the provisions of the UK Corporate
Governance Code (the Code) specied for auditor review
and the Directors have requested that we also review their
statements on going concern and the longer-term viability of
the Company as required for UK-registered companies with a
premium listing on the London Stock Exchange. Our additional
responsibilities with respect to the corporate governance
statement and the statements on going concern and the
longer-term viability of the Company as other information
are described in the ‘other information’ section of this report.
Our review was substantially less in scope than an audit
and only consisted of making inquiries and considering the
Directors’ process supporting their statements; checking that
the statements are in alignment with the relevant provisions
of the Code; and considering whether the statements are
consistent with the knowledge acquired by us in the course
of performing our audit. We have nothing to report having
performed our review.
The engagement partner on the audit resulting in this
independent auditor’s report is Arthur Wightman.
PricewaterhouseCoopers Ltd.
Chartered Professional Accountants
Bermuda
3 March 2021
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Financial summary
Consolidated income statement
For the year ended 31 December 2020 Note
2020
Total
$m
2019
Total
$m
Income
Gross premiums written 4 4,033.1 4,030.7
Outward reinsurance premiums 4, 23.2 (1,282.7) (1,351.9)
Net premiums written 2,750.4 2,678.8
Gross premiums earned 4,071.2 3,931.9
Premiums ceded to reinsurers (1,319.0) (1,296.3)
Net premiums earned 4, 23.2 2,752.2 2,635.6
Investment result 4, 7 197. 5 223.0
Other income 4, 9 50.2 53.1
Total income 2,999.9 2,911.7
Expenses
Claims and claim adjustment expenses 23.2 (2,966.5) (3,206.7)
Reinsurance recoveries 23.2 1,043.8 1,630.6
Claims and claim adjustment expenses, net of reinsurance 4, 23.2 (1,922.7) (1,576.1)
Expenses for the acquisition of insurance contracts 15 (1,002.9) (944.9)
Reinsurance commission income 15 289.0 283.9
Operational expenses 4, 9 (573.0) (593.5 )
Net foreign exchange (loss)/gain (14.5) 8.5
Total expenses (3,224.1) (2,822.1)
Results of operating activities (224.2) 89.6
Finance costs 4, 10 (44.0) (36.6)
Share of (loss)/prot of associates after tax 4, 14 (0.3 ) 0.1
(Loss)/prot before tax (268.5) 5 3.1
Tax expense 25 (25.2) (4.2)
(Loss)/prot for the year (all attributable to owners of the Company) (293.7) 48.9
(Loss)/earnings per share on (loss)/prot attributable to owners of the Company
Basic 28 (91.6)¢ 17. 2¢
Diluted 28 (90.6)¢ 16.9¢
Consolidated statement of comprehensive income
For the year ended 31 December 2020 Note
2020
Total
$m
2019
Total
$m
(Loss)/prot for the year (293.7) 48.9
Other comprehensive income
Items that will not be reclassied to the income statement:
Remeasurements of the net dened benet obligation 27 (38.0 ) (16.5)
Income tax effect 8.8 3.4
(29.2) (13.1)
Items that may be reclassied subsequently to the income statement:
Exchange gains/(losses) on translating foreign operations 55.5 (1.0)
Other comprehensive income net of tax 26.3 (14.1)
Total comprehensive income for the year (all attributable to owners of the Company) (267.4) 34.8
The notes on pages 126 to 186 are an integral part of these consolidated nancial statements.
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Consolidated balance sheet
At 31 December 2020 Note
2020
$m
2019
$m
Assets
Goodwill and intangible assets 12 298.9 278.0
Property, plant and equipment 13 109.4 128.4
Investments in associates 14 4.9 8.6
Deferred tax 26 70.7 76.9
Deferred acquisition costs 15 439.2 456.1
Financial assets carried at fair value 17 6,116.8 5,539.0
Reinsurance assets 16, 23 3,644.6 3,386.9
Loans and receivables including insurance receivables 18 1,591.2 1,556.3
Current tax asset 3.3 4.7
Cash and cash equivalents 21 1, 577. 2 1,115.9
Total assets 13,856.2 12,550.8
Equity and liabilities
Shareholders’ equity
Share capital 22 38.7 3 4.1
Share premium 22 516.5 70.5
Contributed surplus 22 184.0 184.0
Currency translation reserve (270.8) (326.3 )
Retained earnings 1,884.4 2,226.3
Equity attributable to owners of the Company 2,352.8 2,18 8.6
Non-controlling interest 1.1 1.1
Total equity 2,353.9 2,189.7
Employee retirement benet obligations 27 73.5 5 5.1
Deferred tax 26 2.7 0.4
Insurance liabilities 23 9,113.4 8,094.5
Financial liabilities 17 946.7 728.8
Current tax 30.4 62.0
Trade and other payables 24 1,335.6 1,420.3
Total liabilities 11,502.3 10,361.1
Total equity and liabilities 13,856.2 12,550.8
The notes on pages 126 to 186 are an integral part of these consolidated nancial statements.
The consolidated nancial statements were approved by the Board of Directors on 3 March 2021 and signed on its behalf by:
Aki Hussain
Chief Financial Ofcer
Bronek Masojada
Chief Executive
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Consolidated statement of changes in equity
Note
Share
capital
$m
Share
premium
$m
Contributed
surplus
$m
Currency
translation
reserve
$m
Retained
earnings
$m
Equity
attributable to
owners of the
Company
$m
Non-controlling
interest
$m
Total
equity
$m
Balance at 1 January 2019 34.0 57.6 184.0 (325.3) 2,3 07.6 2,257. 9 1.1 2,259.0
Prot for the year
(all attributable to owners
of the Company) – – – – 48.9 48.9 – 48.9
Other comprehensive income
net of tax (all attributable to
owners of the Company) – – – (1.0) (13.1) (14.1) – (14.1)
Employee share options:
Equity settled
share-based payments – – – – 3.6 3.6 – 3.6
Proceeds from
shares issued 22 – 3.6 – – – 3.6 – 3.6
Deferred and current tax on
employee share options – – – – 0.2 0.2 – 0.2
Shares issued in relation
to Scrip Dividend 22, 29 0.1 9.3 – – – 9.4 – 9.4
Dividends paid to owners
of the Company 29 – – – – (120.9) (120.9) – (120.9)
Balance at 31 December 2019 34.1 70.5 184.0 (326.3) 2,226.3 2,18 8.6 1.1 2,189.7
Loss for the year
(all attributable to
owners of the Company) – – – (293.7) (293.7) – (293.7)
Other comprehensive income
net of tax (all attributable to
owners of the Company) – – – 55.5 (29.2) 26.3 – 26.3
Employee share options:
Equity settled
share-based payments – – – – 10.3 10.3 – 10.3
Deferred and current tax on
employee share options – – – – (5.4) (5.4) – (5.4 )
Net movements of treasury
shares held by Trust – – – – (23.9 ) (23.9 ) – (23.9 )
Shares issued in the period 22, 29 4.6 446.0 – – – 450.6 – 450.6
Balance at 31 December 2020 38.7 516.5 184.0 (270.8 ) 1,884.4 2,352.8 1.1 2,353.9
The notes on pages 126 to 186 are an integral part of these consolidated nancial statements.
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Consolidated statement of cash ows
For the year ended 31 December 2020 Note
2020
$m
2019
$m
(Loss)/prot before tax (268.5) 5 3.1
Adjustments for:
Net foreign exchange loss/(gain) 14.5 (8.5 )
Interest and equity dividend income (107.4) (123.7)
Interest expense 44.0 36.6
Net fair value (gains) on nancial assets (51.2) (70.8)
Depreciation, amortisation and impairment 9, 12, 13 56.8 44.6
Charges in respect of share-based payments 9, 22 10.3 3.6
Changes in operational assets and liabilities:
Insurance and reinsurance contracts 633.6 414.3
Financial assets carried at fair value (475.4) (405.0)
Financial liabilities carried at fair value (0.1) (0.5 )
Financial liabilities carried at amortised cost 0.8 0.8
Other assets and liabilities 33.3 14.3
Cash paid to the pension fund (30.4) (3.6 )
Interest received 102.5 130.8
Equity dividends received 1.6 1.1
Interest paid (42.4) (36.4)
Current tax paid (39.1) (11.2)
Net cash (used in)/ows from operating activities (117.1) 39.5
Purchase of property, plant and equipment (9.0 ) (6.4 )
Proceeds from the sale of property, plant and equipment 8.6 –
Purchase of intangible assets (62.5) (90.9)
Proceeds from the sale of intangible assets 10.2 –
Net cash used in investing activities (52.7) ( 97.3)
Proceeds from the issue of ordinary shares 22 450.6 3.6
Shares repurchased 22 (23.9) –
Distributions made to owners of the Company 22, 29 – (111.6)
Proceeds from drawdown of short-term borrowings 470.0 –
Repayment of short term borrowings (289.4) –
Principal elements of lease payments (14.5) (15.5)
Net cash ows from/(used in) nancing activities 592.8 (123.5)
Net increase/(decrease) in cash and cash equivalents 423.0 (181.3)
Cash and cash equivalents at 1 January 1,115.9 1,288.8
Net increase/(decrease) in cash and cash equivalents 423.0 (181.3)
Effect of exchange rate uctuations on cash and cash equivalents 38.3 8.4
Cash and cash equivalents at 31 December 1,577. 2 1,115.9
The purchase, maturity and disposal of nancial assets is part of the Group’s insurance activities and is therefore classied as
an operating cash ow. The purchase, maturity and disposal of derivative contracts is also classied as an operating cash ow.
Included within cash and cash equivalents held by the Group are balances totalling $172 million (2019: $167 million) not
available for immediate use by the Group outside of the Lloyd’s syndicate within which they are held. Additionally, $9 million
(2019:$41million) is pledged cash held against Funds at Lloyd’s, and $0.5 million (2019: $0.3 million) held within trust funds
against reinsurance arrangements.
The notes on pages 126 to 186 are an integral part of these consolidated nancial statements.
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Notes to the consolidated nancial 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
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 ofce is: Chesney House,
2 Basis of preparation
The consolidated nancial statements have been prepared
and approved by the Directors in accordance with International
Financial Reporting Standards (IFRS) as adopted by
the European Union, 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 nancial statements have been prepared
under the historical cost convention, except that pension
scheme assets included in the measurement of the employee
retirement benet obligation which is determined using
actuarial analysis, and certain nancial instruments including
derivative instruments, are measured at fair value.
The consolidated nancial 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 to assess the
robustness of the Group’s solvency and liquidity positions.
To make the assessment, the Group constructed a combined
scenario which included applying material sensitivities to
(re)insurance claims relating to Covid-19, modelling a signicant
catastrophe loss and a default in the Group’s reinsurance
programme. An aggregated scenario such as this, and the
sequence of events it involves, is considered to be remote
and there are mitigating recovery actions that can be taken
to restore the capital position to the Group’s target range.
In undertaking this analysis, no material uncertainty in relation
to going concern has been identied, due to the Group’s strong
capital and liquidity positions providing considerable resilience
to these 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 nancial statements.
The impact of Covid-19 has been factored into a number of
the signicant nancial reporting judgements and estimates
discussed in Note 2.21, and has been reected in the
relevant sections of the consolidated nancial statements,
notably impairment testing on intangible assets, fair value
measurement of investments, insurance liabilities and deferred
tax assets. The specic consideration relating to the current
market conditions was also taken into account in the various
sections of the risk management note.
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 nancial 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 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 nancial statements were approved for issue by the
Board of Directors on 3March2021.
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Notes to the
consolidated nancial
statements
The principal accounting policies applied in the preparation
of these consolidated Group nancial statements are set
out below. The most critical individual components of
these nancial statements that involve the highest degree
of judgement or signicant assumptions and estimations
are identied in note 2.21.
Except as described below and overleaf, the accounting
policies adopted are consistent with those of the previous
nancial year.
New accounting standards, interpretations and amendments
to published standards
A number of new standards, amendments to standards
and interpretations, as adopted by the European Union,
are effective for annual periods beginning on, or after,
1 January 2020. They have been applied in preparing
these consolidated nancial statements.
The amendments to published standards include:
A Amendments to IFRS 3 Denition of a Business
The amendment to IFRS 3 claries that to be considered
a business, an integrated set of activities and assets
must include, at a minimum, an input and a substantive
process that together signicantly contribute to the ability
to create output. Furthermore, it claried that a business
can exist without including all of the inputs and processes
needed to create outputs. These amendments had no
impact on the consolidated nancial statements, but
may impact future periods should the Group enter into
any business combinations.
A Amendments to IFRS 7, IFRS 9 and IAS 39 Interest
Rate Benchmark Reform
The amendments to IFRS 9 and IAS 39 Financial
Instruments: Recognition and Measurement provide
a number of reliefs, which apply to all hedging
relationships that are directly affected by interest
rate benchmark reform. A hedging relationship is
affected if the reform gives rise to uncertainties
about the timing and/or amount of benchmark-based
cash ows of the hedged item or the hedging instrument.
These amendments had no impact on the consolidated
nancial statements of the Group as it does not have
any interest rate hedge relationships.
A Amendments to IAS 1 and IAS 8 Denition of Material
The amendments provide a new denition of material
that states ‘information is material if omitting, misstating
or obscuring it could reasonably be expected to inuence
decisions that the primary users of general purpose
nancial statements make on the basis of those nancial
statements, which provide nancial information about
a specic reporting entity’. The amendments clarify that
materiality will depend on the nature or magnitude of
information, either individually or in combination with
other information, in the context of the nancial
statements. A misstatement of information is material
if it could reasonably be expected to inuence decisions
made by the primary users. These amendments had
no impact on the consolidated nancial statements
of, nor is there expected to be any future impact to,
the Group.
A Conceptual Framework for Financial Reporting issued
on 29 March 2018
The Conceptual Framework is not a standard, and
none of the concepts contained therein override the
concepts or requirements in any standard. The purpose
of the Conceptual Framework is to assist the IASB
in developing standards, to help preparers develop
consistent accounting policies where there is no
applicable standard in place and to assist all parties to
understand and interpret the standards. The revised
Conceptual Framework includes some new concepts,
provides updated denitions and recognition criteria
for assets and liabilities and claries some important
concepts. These amendments had no impact on the
consolidated nancial statements of the Group.
There were no other new standards or amendments that
had a material impact on the Group.
The following new standards, and amendments to
standards, are effective for annual periods beginning after
1January2020 and have not been applied in preparing
these nancial statements:
A IFRS 9 Financial Instruments
This standard incorporates new classication and
measurement requirements for nancial 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 satises
the criteria set out in IFRS 4 Insurance Contracts for the
temporary exemption from IFRS 9. At 31 December 2015
(the date specied by IFRS 4), the carrying value of the
Group’s liabilities connected with insurance comprised
over 90% of the total liabilities. These include signicant
insurance liabilities; the subordinated debt ($0.4 billion)
as this debt counts towards the Group’s regulatory and
rating agency capital requirements; and creditors arising
from insurance operations ($0.3 billion). 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 prot or loss on initial recognition and
subsequently remeasured to fair value at each reporting
date, reecting the Group’s business model for managing
and evaluating the investment portfolio. Adoption of
IFRS 9 is not expected to result in any changes to the
measurement of the Group’s investments, which
continues to be at fair value through prot or loss.
Financial assets within the scope of IFRS 17 Insurance
Contracts such as premiums receivable and reinsurance
and other recoveries on paid claims, which together
form the majority of the carrying value of the Group’s
loans and receivables, and reinsurance recoveries on
outstanding claims are outside the scope of IFRS 9
and are unaffected by the new requirements.
In addition to those balances, loans and receivables
also includes due from brokers, agents and
intermediaries and other nancial assets which
are within the scope of IFRS 9. Under IFRS 9, these
assets continue to be recognised at amortised cost
less impairment, with the measurement of impairment
2 Basis of preparation continued
2.1 Signicant accounting policies
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Notes to the
consolidated nancial
statements
reecting expected as well as incurred credit losses. The
Group expects a recognition of an earlier and higher loss
allowance under this approach compared to the current
approach resulting in a negative impact on equity and will
perform a detailed assessment in the future to determine
the extent. IFRS 9 has been endorsed by the EU.
A IFRS 17 Insurance Contracts
IFRS 17 will signicantly change the accounting for
insurance contracts. It prescribes a general measurement
model based on the discounted current estimates of
future cash ows, including an explicit risk adjustment
and a contractual service margin, which represents the
unearned prot of the contracts. Application of a simplied
premium allocation approach (PAA), which is similar
to the current unearned premium approach, is permitted
if it provides a measurement that is not materially different
from the general model or if the coverage period is
one year or less. Any expected losses arising from
loss-making contracts are to be accounted for in the
income statement when the entity determines that losses
are expected. The presentation of the income statement
will also change, with premium and claims gures being
replaced with insurance contract revenue, insurance
service expense and insurance nance income and
expense. The Group is evaluating the impact of adopting
IFRS 17 on the nancial statements which includes:
A developing the Group’s accounting policy under
IFRS 17;
A performing a PAA eligibility assessment;
A preparing end-to-end system architecture
and conguring an actuarial calculation engine;
A outlining an operational readiness framework
including stakeholder engagement and an
internal training plan.
The Group’s implementation programme is progressing in line
with expectations. IFRS 17 is effective on 1 January 2023 and
has not yet been endorsed by the EU.
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 nancial statements include the
assets, liabilities and results of the Group up to 31December
each year. The nancial statements of subsidiaries are included
in the consolidated nancial 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. Identiable 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 identiable 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.
(b) Associates
Associates are those entities in which the Group has signicant
inuence but not control over the nancial and operating
policies. Signicant inuence is generally identied with a
shareholding of between 20% and 50% of an entity’s voting
rights. The consolidated nancial statements include the
Group’s share of the total recognised gains and losses of
associates on an equity-accounted basis from the date that
signicant inuence commences until the date that signicant
inuence ceases.
The Group’s share of its associates’ post-acquisition prots
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 reected 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 nancial 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 nancial 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.
2 Basis of preparation
2.1 Signicant accounting policies
New accounting standards, interpretations and amendments
to published standards continued
129Hiscox Ltd Report and Accounts 2020
Chapter 2 17
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Chapter 1 3
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Chapter 3 51
Governance
Chapter 6 113
Financial summary
Notes to the
consolidated nancial
statements
(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 nancial 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 benets
associated with the item will ow 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 nancial period in which they are incurred.
Land is not depreciated as it is deemed to have an indenite
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 xtures
and ttings 10–15 years
A furniture, ttings 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
carrying amount. These are included in the income statement.
2.5 Intangible assets
(a) Goodwill
Goodwill represents amounts arising on acquisition of
subsidiaries and associates. In respect of acquisitions that
have occurred since 1January2004, 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 identiable
assets and contingent liabilities assumed of the acquired
subsidiary or associate at the acquisition date.
In respect of acquisitions prior to 1January2004, 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
identied according to the smallest identiable unit to which
cash ows 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 indenite lives such as syndicate capacity are
subsequently valued at cost and are subject to annual
impairment assessment.
Intangible assets with nite 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.
2 Basis of preparation
2.3 Foreign currency translation continued
130 Hiscox Ltd Report and Accounts 2020
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Remuneration
Chapter 5 107
Shareholder information
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Notes to the
consolidated nancial
statements
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
benets embodied in the specic asset to which it relates.
All other expenditure is expensed as incurred.
Those intangible assets with nite 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 another 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-nancial 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 feasible. The best evidence of
the fair value of a nancial 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
nancial 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 classies its nancial assets as a) nancial
assets at fair value through prot or loss, and b) loans
and receivables. Management determines the
classication of its nancial assets based on the
purpose for which the nancial assets are held at initial
recognition. The decision by the Group to designate
debt and xed income securities, equities and investment
funds and deposits with credit institutions, at fair value
through prot or loss reects 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, nancial assets
and liabilities are measured as described below. Financial assets
are derecognised when the right to receive cash ows from them
expires or where they have been transferred and the Group has
also transferred substantially all risks and rewards of ownership.
(a) Financial assets at fair value through prot or loss
A nancial asset is classied 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 nancial
assets in which there is evidence of short-term prot taking.
(b) Loans and receivables
Loans and receivables are non-derivative nancial assets
with xed or determinable payments that are not quoted on an
active market. Receivables arising from insurance contracts
are included in this category and are reviewed for impairment
as part of the impairment review of loans and receivables.
Loans and receivables are carried at amortised cost less
any provision for impairment in value.
(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 classied 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 nancial investments with less than
three months to maturity at the date of acquisition.
2.9 Impairment of assets
Assets that have an indenite 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 assets
Objective factors that are considered when determining
whether a non-nancial asset (such as goodwill, an intangible
asset or item of property, plant and equipment) or group of
non-nancial 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 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 nancial asset or group of nancial assets may
2 Basis of preparation
2.5 Intangible assets
(b) Other intangible assets continued
131Hiscox Ltd Report and Accounts 2020
Chapter 2 17
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Chapter 4 75
Remuneration
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Shareholder information
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Notes to the
consolidated nancial
statements
be impaired include, but are not limited to, the following:
A negative rating agency announcements in respect of
investment issuers, reinsurers and debtors;
A signicant reported nancial difculties of investment
issuers, reinsurers and debtors;
A actual breaches of credit terms such as persistent late
payments or actual default;
A the disintegration of the active market(s) in which a
particular asset is traded or deployed;
A adverse economic or regulatory conditions that may
restrict future cash ows 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 identiable cash ows (cash-generating
units). For nancial assets, 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
discounted at the nancial 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 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
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 nancial 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 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.
2.12 Revenue
Revenue comprises insurance and reinsurance premiums
earned on the rendering of insurance protection, net of
reinsurance, together with prot 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 are transferred to a customer, i.e. performance
obligations are fullled at an amount that reects 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) Classication
Insurance contracts are dened as those containing signicant
insurance risk if, and only if, an insured event could cause
an insurer to make signicant 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 signicant
insurance risk.
(b) Recognition and measurement
Gross premiums written comprise premiums on business
incepting in the nancial 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 prot 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.
2 Basis of preparation
2.9 Impairment of assets
(b) Financial assets continued
132 Hiscox Ltd Report and Accounts 2020
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Shareholder information
Chapter 1 3
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Chapter 3 51
Governance
Chapter 6 113
Financial summary
Notes to the
consolidated nancial
statements
(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
and claims handling and administration expenses, as well as
investment income from assets backing such liabilities, are
used. Any deciency is charged to prot 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 contracts and that meet the classication
requirements for insurance contracts, are classied as
reinsurance contracts held. Contracts that do not meet these
classication requirements are classied as nancial assets.
The benets to which the Group is entitled under outwards
reinsurance contracts are recognised as reinsurance assets.
These assets consist of short-term balances due from reinsurers
(classied within loans and receivables) as well as longer-term
receivables (classied as reinsurance assets) that are dependent
on the expected claims and benets 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.
Reinsurance liabilities primarily comprise premiums payable
for outwards reinsurance contracts. 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.
(f) Retroactive reinsurance transactions
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
recovery method over the settlement period of the reserves
and reected 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 outow
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 nancial
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 prot 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 prot 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 benets
(a) Pension obligations
The Group operated both dened contribution and dened
benet pension schemes during the year under review.
2 Basis of preparation
2.13 Insurance contracts continued
133Hiscox Ltd Report and Accounts 2020
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Remuneration
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Shareholder information
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Notes to the
consolidated nancial
statements
The dened benet scheme closed to future accrual with
effect from 31December2006 and active members were
offered membership of the dened contribution scheme
from 1January2007. A dened contribution plan is a pension
plan under which the Group pays xed contributions into a
separate entity and has no further obligation beyond the agreed
contribution rate. A dened benet plan is a pension plan
that denes an amount of pension benet that an employee
will receive on retirement, usually dependent on one or more
factors such as age, years of service and compensation.
For dened 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 benet 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
dened benet pension plans is the present value of the dened
benet obligation at the balance sheet date, less the fair
value of plan assets. Plan assets include insurance contracts.
The calculation of the dened benet obligation is performed
annually by a qualied actuary using the projected unit
method. As the plan is closed to all future benet accrual, each
participant’s benets under the plan are based on their service
to the date of closure or earlier leaving, their nal pensionable
earnings at the measurement date and 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 dened benet liability, which
comprise actuarial gains and losses, the return on plan assets
(excluding interest) and the effect of the asset ceiling (if any,
excluding interest), are recognised immediately in other
comprehensive income. The Group determines the net interest
expense (income) on the net dened benet liability (asset)
for the period by applying the discount rate used to measure
the dened benet obligation at the beginning of the annual
period to the then net dened benet liability (asset), taking
into account any changes in the net dened benet liability
(asset) during the period as a result of contributions and benet
payments. Net interest expense and other expenses related to
dened benet plans are recognised in the income statement
through operating expenses.
To the extent that a surplus emerges on the dened benet
obligation, it is only recognisable as an asset when it is
probable that future economic benets will be recovered
by the Group in the form of refunds.
(b) Other long-term employee benets
The Group provides sabbatical leave to employees on
completion of a minimum service period of ten years. The
present value of the expected costs of these benets 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 a number of 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, protability 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 modied,
and the expense to be recognised increases as a result of the
modication, then the increase is recognised evenly over the
remaining vesting period. When a modication reduces the
expense to be recognised, there is no adjustment recognised
and the pre-modication 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 benets
Termination benets are payable when employment is
terminated before the normal retirement date, or whenever
an employee accepts voluntary redundancy in exchange for
these benets. The Group recognises termination benets
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 benets as a result of an offer made to encourage
voluntary redundancy.
(e) Prot sharing and bonus plans
The Group recognises a liability and an expense for bonuses and
prot sharing, based on a formula that takes into consideration
the prot 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.
(f) Accumulating compensation benets
The Group recognises a liability and an expense for
accumulating compensation benets (for example, holiday
entitlement), based on the additional amount that the
Group expects to pay as a result of the unused entitlement
accumulated at the balance sheet date.
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
2 Basis of preparation
2.15 Employee benets
(a) Pension obligations continued
134 Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Notes to the
consolidated nancial
statements
effective. The Group hedged elements of its net investment in
certain foreign entities through foreign currency borrowings
that qualied for hedge accounting from 3January2007
until their replacement on 6May2008; accordingly gains or
losses on retranslation are recognised in equity to the extent
that the hedge relationship was effective during this period.
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. Arrangement
fees in respect of nancing 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 outow of
economic benets 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 its 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 payments (including in-substance xed 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 reects 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
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 reect 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 modication 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 xed 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 short-term leases (i.e. those leases that have a lease term
of 12 months or less from the commencement date and do not
contain a purchase option). It also applies the lease of low-value
assets recognition exemption to leases of ofce equipment that
are considered of low value. Lease payments on short-term
leases and leases of low-value assets are recognised as
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 nancial statements
in the period in which the dividends are approved.
2.21 Use of signicant judgements, estimates
and assumptions
The preparation of nancial 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
nancial statements.
The Audit Committee reviews the reasonableness of critical
judgements, estimates and assumptions applied and the
appropriateness of signicant accounting policies. The
signicant issues considered by the Committee in the year are
included within the Audit Committee report on pages 71 to 73.
Signicant accounting judgements
The following accounting policies are those considered to
have a signicant impact on the amounts recognised in the
consolidated nancial statements, with those judgements
involving estimation summarised thereafter.
A Going concern: assessment of whether the Group has
adequate resources to continue in operational existence
over a period of at least 12 months from the date of the
consolidated nancial statements. See note 2 ‘basis of
preparation’ for further details;
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 contract: assessment of the signicance of
insurance risk transferred to the Group in determining
whether a contract should be accounted for as an
insurance contract or as a nancial instrument;
A Financial investments: classication and measurement of
investments including the application of the fair value option.
2 Basis of preparation
2.16 Net investment hedge accounting continued
135Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Notes to the
consolidated nancial
statements
Signicant 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 signicantly.
In 2020, Covid-19 has had a signicant impact on market
conditions and the business. Estimates and their underlying
assumptions continue to be reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the
period in which the estimate is revised and in any future
periods affected. Where an estimate has been made in
response to Covid-19, additional disclosure has been
provided in the relevant note to provide context to the
gures presented.
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 estimate for losses incurred but not
reported, which is included within insurance liability and
reinsurance assets on the balance sheet. The total gross
estimate as at 31December 2020 is $4,571.9 million
(2019: $4,017.0million) and is included within total
insurance liabilities on the balance sheet. The total
estimate for reinsurers’ share of losses incurred but not
reported as at 31 December 2020 is $2,227.7million
(2019:$2,106.4 million).
Estimates of losses incurred but not reported are
continually evaluated, based on entity-specic 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 nal settlement
of a claim circumstances may change, which may result in
changes to 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 which to the
unearned premium liability net of acquisition costs. As set
out in note 2.13(d), any deciency is recognised in the income
statement. The related deferred acquisition costs are rst
written down and any additional liability required is then
recognised as an unexpired risk reserve (URR). In 2020,
the Group has recognised a loss due to this test and
established an URR. If this estimation were to prove
inadequate, the unexpired risk reserve could be understated.
The total estimate for URR net of reinsurers’ shares as at
31 December 2020 was $22.9 million (2019: nil). Another
key estimate contained within the Group’s consolidated
nancial statements is an estimate of gross premium 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
written premiums in the consolidated income statements and
premiums receivable from insureds and cedants recorded on
the consolidated balance sheet.
The Group carries its nancial investments at fair value
through prot or loss, with fair values determined using
published price quotations in the most active nancial
markets in which the assets trade, where available. Where
quoted market prices are not available, valuation techniques
are used to value nancial instruments. These include
third-party valuation reports and models utilising both
observable and unobservable market inputs. The valuation
techniques involve judgement with regard to the valuation
models used and the inputs to these models can lead to
a range of plausible valuation for nancial investments.
Note 3.3 discusses the reliability of the Group’s fair values.
The employee retirement benet scheme obligations are
calculated and valued with reference to a number of actuarial
assumptions including mortality, ination rates and discount
rate, many of which have been subject to specic recent
volatility. This complex set of economic variables can have
a signicant impact on the nancial statements, as shown
in note 27.
The Group operates in a complex multinational environment
and legislation concerning the determination of taxation
assets and liabilities is complex and continually evolving.
In preparing the nancial statements, the Group applies
signicant 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 prot in the Group. In preparing
the Group’s nancial statements, management estimates
taxation assets and liabilities after taking appropriate
professional advice, as shown in note 25. Signicant estimates
and assumptions used in the valuation of deferred tax relate
to the forecast taxable prots, taking into account the Group’s
nancial and strategic plans. See note 26 for further details
of adjustments made to deferred tax during the year.
The determination and nalisation of agreed taxation assets
and liabilities may not occur until several years after the
reporting date and consequently the nal amounts payable
or receivable may differ from those presented in these
nancial statements.
2 Basis of preparation
2.21 Use of signicant judgements, estimates
and assumptions continued
136 Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Notes to the
consolidated nancial
statements
2 Basis of preparation continued
2.22 Reporting of additional performance measures
The Directors consider that the combined 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 industry and are consistent with the internal
performance measures reviewed by senior management
including the chief operating decision-maker. However, these
measures are not dened within the IFRS framework and
body of 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 dened 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 identication, 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 protable
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 inuenced by the Board’s Non Executive Directors
and aclear upwards reporting structure back into the Board.
The Group, in line with the non-life insurance industry generally,
is fundamentally driven by adesire to originate, retain and
service insurance contracts to maturity. The Group’s cash ows
are funded mainly through advance premium collections and
the timing of such premium inows is reasonably predictable.
In addition, the majority of material cash outows are typically
triggered by the occurrence of insured events, although the
timing, frequency and severity of claims can uctuate.
The Group continues to monitor and respond to Covid-19,
in particular the impact related to our operations, insurance
claims, reinsurance assets and investments on the Group’s
capital and liquidity positions.
A The Group responded quickly to the lockdowns in each
location and transitioned to a remote working structure
within a few days. The Group’s IT infrastructure supported
over 95% of its 3,000 employees around the world in
working from home with no signicant impact on
trading capabilities or business processes.
A The estimate of insurance claims related to Covid-19
is $475 million net of reinsurance which has been
reected in the consolidated nancial statements.
This loss estimate along with other insurance claims
are continually evaluated, based on entity-specic
historical experience and contemporaneous
developments observed in the wider industry when
relevant and are also updated for expectations of
prospective future developments.
A The Group utilises a broad, high-quality panel of reinsurers
across multiple treaties and actively monitors its credit risk
exposure and concentration risk. To date, the Group has
not experienced any defaults, as detailed in note 3.3 (d).
A The Group’s investments portfolio remains heavily
weighted toward government issued and investment
grade corporate debts with minimum exposure to
unlisted investments, as detailed in note 3.3 (d).
During the year, the Group took an action to increase its
liquidity position in short-term deposits and similar cash
and cash equivalents.
The capital raised from the share issuance in 2020, while
predominantly held to better position the business for future
growth opportunities, also provided additional strength to
the capital and liquidity positions in light of the continued
uncertainty arising from Covid-19.
The principal sources of risk relevant to the Group’s operations
and its nancial statements fall into three broad categories:
operational risk, insurance risk and nancial 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
Covid-19 has required the Group’s ongoing focus on
safeguarding the well-being of its employees, serving its clients,
and preserving operational continuity. At one point, the Group
had over 95% of its more than 3,000 employees around the
world working from home, and it continues to support them
through exible working and the provision of mental health
and well-being services. This has also meant that internal
processes, capability of people and IT systems have been
put to the test. The Group has adapted to the changes
in the operational environment and business processes
have continued to be carried out effectively and efciently.
The Group demonstrated resilience in 2020, underscoring the
benets of its business model, disciplined risk management
and ongoing investment in technology and infrastructure.
Measures the Group has implemented to adapt to Covid-19
have proven largely effective in addressing the relevant
challenges and operational risks and some of these
measures represent an acceleration of longer-term plans.
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 identied opportunities in the light
of other relevant anticipated market conditions.
The Board requires all underwriters to operate within an overall
Group appetite for individual events. This denes the maximum
exposure that the Group is prepared to retain on its own
137Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Notes to the
consolidated nancial
statements
account for any one potential catastrophe event or disaster.
The Group’s underwriting risk appetite seeks to ensure that
it should not lose more than 12.5% of core capital, dened
as NAV plus subordinated debt less expected dividend less
buffer capital, plus 100% of buffer capital ($135million) with
an allowance for expected investment income, as aresult of
a one-in-200 aggregate bad underwriting year.
Specic underwriting objectives such as aggregation limits,
reinsurance protection thresholds and geographical disaster
event risk exposures are prepared and reviewed by the
Chief Underwriting Ofcer in order to translate the Board’s
summarised underwriting strategy into specic 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 identication 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 specic 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. Regular meetings are
held between the Chief Underwriting Ofcer and aspecialist
team in order to monitor claims development patterns and
discuss individual underwriting issues as they arise. The Group
compiles estimates of losses arising from extreme loss events
using statistical models alongside input from its underwriters.
These require signicant management judgement. The extreme
loss scenarios, shown on page 38, represent hypothetical
major events occurring in areas with large insured values.
They also represent areas of potentially signicant exposure
for Hiscox.
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
deciencies, or losses from unmodelled risks. This means
that should an extreme loss event actually occur, the Group’s
nal 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, relevant policies
frequently contain payment limits to cap the maximum amount
payable from these insured events over the contract period.
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 on the extent and
competitiveness of cover available in the market.
Below is asummary of the gross and net insurance liabilities
for each category of business.
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 31December 2020
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 2,592.7 286.7 1,3 08.1 2,650.4 1,576.5 699.0 9,113.4
Net 812.8 138.1 671.3 2,268.6 1,0 97.0 481.0 5,468.8
Estimated concentration of gross and net insurance liabilities on the balance sheet as at 31December 2019
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 2,80 9.1 228.8 1,098.3 2,420.5 1,020.1 517.7 8,094.5
Net 556.1 183.6 710.8 2,013.4 813.7 430.0 4 ,707.6
*Includes a diverse mix of certain specialty lines such as kidnap and ransom, terrorism and other risks which contain amix of property and casualty exposures.
138 Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Notes to the
consolidated nancial
statements
The estimated liquidity prole to settle the gross claims
liabilities is given in note 3.3(e).
The specic 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 specic categories are dened for risk
review purposes only, as each contains risks specic to the
nature of the cover provided. They are not exclusively aligned
to any specic reportable segment in the Group’s operational
structure or the primary internal reports reviewed by the
chief operating decision-maker. 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 crop 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 asingle 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, and other events
including res and explosions. The occurrence and impact of
these events are very difcult to predict over the short term,
which complicates attempts to anticipate claims frequencies on
an annual basis. In those years where there is alow incidence
of severe catastrophes, claims frequencies on the reinsurance
inwards book can be relatively low.
A signicant 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 aminimum level. Consequently the
frequency and severity of reinsurance inwards claims are
related not only to the number of signicant 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 reect any changes in market conditions.
Property risks – marine and major assets
The Group directly underwrites a diverse range of property
risks. The risk prole 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.
Typical property covered by marine and other major property
contracts includes xed 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, ooding, re and theft.
Climate change may give rise to more frequent and severe
extreme weather events (for example windstorms and river
ooding) 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 reect the continually evolving risk
prole. The most signicant 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 inuence 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 aransom demand is
subsequently met. Events which can generate claims on these
contracts include burglary, kidnap, seizure of assets, acts of
vandalism, res, ooding and storm damage. Losses on most
classes can be predicted with agreater degree of certainty as
there is arich 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 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 diversied in terms of type and
amount of potential hazard, industry and geography.
3 Management of risk
3.2 Insurance risk
i) Underwriting risk continued
139Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Notes to the
consolidated nancial
statements
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 specic losses suffered
as aresult 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
responsibilities, including directors and ofcers’ 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
ination 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 more connected. The risks associated
with cyber insurance are multiplying in both diversity and scale,
with associated nancial 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 nal 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 diversied. Short-tailed claims are
normally notied and settled within 12 to 24 months of the
insured event occurring. Those claims taking the longest 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 denitive legal judgements and make eventual
settlements exposes the Group to adegree of reserving
risk in an inationary environment.
The nal quantum for casualty claims may not be established
for many years after the event. Consequently, a signicant
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. This has been considered
in the reserving process.
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 difculties
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 specic aspects of the impact of Covid-19 to
Hiscox in relation to insurance risk, the Group focuses on:
A existing exposures, reinsurance coverage and, from
a forward-looking perspective, the underwriting
functions develop a projection of exposures taking
account changes to coverage including exclusions
and incorporating rate changes; the assessment is
undertaken on a portfolio-by-portfolio basis across
the Group’s geographic footprint;
A handling claims arising from Covid-19 in a fair,
consistent and efcient way, and actively settling
claims for event cancellation and abandonment,
media and entertainment and other segments
including travel.
3.3 Financial risk
Overview
The Group is exposed to nancial risk through its ownership
of nancial instruments including nancial liabilities. These
items collectively represent asignicant element of the Group’s
net shareholder funds. The Group invests in nancial assets in
order to fund obligations arising from its insurance contracts
and nancial liabilities.
The key nancial risk for the Group is that the proceeds from
its nancial assets and investment result generated thereon
are not sufcient to fund the 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 specic 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 nancial investments at fair value
through prot or loss as they are managed and evaluated on
afair value basis in accordance with adocumented strategy.
3 Management of risk
3.2 Insurance risk
i) Underwriting risk
Casualty insurance risks continued
140 Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Notes to the
consolidated nancial
statements
With the exception of any unquoted investments shown
in note 20, all of the nancial 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 nancial
markets in which the assets trade. The fair value of
nancial 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.
At 31December2020, the Group held asset-backed
and mortgage-backed xed income instruments in its
investment portfolio, but has minimal direct exposure
to sub-prime asset classes. Together with the Group’s
investment managers, management continues to monitor
the potential for any adverse development associated with
this investment exposure through the analysis of relevant
factors such as credit ratings, collateral, subordination
levels and default rates in relation to the securities held.
The Group did not experience any material defaults on
debt securities during the year.
Valuation of these securities will continue to be impacted
by external market factors including 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 these securities.
Note 20 provides an analysis of the measurement
attributes of the Group’s nancial instruments.
(b) Equity price risk
The Group is exposed to equity price risk through its
holdings of equity and investment funds. This is limited to
a relatively small and controlled proportion of the overall
investment portfolio and the equity and investment funds
involved are diversied over a number of companies and
industries. The fair value of equity and investment fund
assets in the Group’s balance sheet at 31December2020
was $578million (2019:$486million). A 10% downward
correction in equity and investment fund prices at
31 December 2020 would have been expected to reduce
Group equity and prot after tax by approximately
$49 million (2019: $44 million).
These may be analysed as follows:
Nature of equity and investment fund holdings
2020
% weighting
2019
% weighting
Directly held equity securities 8 4
Units held in funds – traditional long only 58 52
Units held in funds – long and short and
other special strategies 34 44
Geographic focus
Specic UK mandates 37 29
Global mandates 63 71
The allocation of equity risk is not heavily conned 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, within
our risk assets, 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 markets.
(c) Interest rate risk
Fixed income investments represent asignicant proportion
of the Group’s assets and the Board continually monitors
investment strategy to minimise the risk of afall 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 income securities 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
income investments would tend to fall and vice versa if credit
spreads remained constant. Debt and xed 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.
The Group may also, from time to time, enter into interest
rate future contracts in order to reduce interest rate risk on
specic portfolios. The fair value of debt and xed income
assets in the Group’s balance sheet at 31December2020
was $5,475million (2019:$4,990million). These may be
analysed below as follows:
Nature of debt and xed income holdings
2020
% weighting
2019
% weighting
Government issued bonds and instruments 20 28
Agency and government supported debt 6 6
Asset-backed securities – 1
Mortgage-backed instruments – agency 6 5
Mortgage-backed instruments – non-agency – 1
Corporate bonds 65 57
Lloyd’s deposits and bond funds 3 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 100 basis
points at the balance sheet date, the Group equity and prot
after tax for the year might have been expected to increase
3 Management of risk
3.3 Financial risk
(a) Reliability of fair values continued
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Notes to the
consolidated nancial
statements
141Hiscox Ltd Report and Accounts 2020
or decrease by approximately $88million (2019:$76million)
assuming that the only balance sheet area impacted was debt
and xed income nancial assets. Duration is the weighted
average length of time required for an instrument’s cash ow
stream to be recovered, where the weightings involved are
based on the discounted present values of each cash ow.
Aclosely related concept, modied duration, measures the
sensitivity of the instrument’s price to a change in its yield
to maturity. Convexity measures the sensitivity of modied
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 100 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 income assets are further detailed in note 17.
At 31 December 2020, the Group had borrowings of
£691 million (2019: £550 million). The borrowings comprised
of £141 million drawn on the Group’s borrowing facility
(2019: $nil) and £550 million (2019: £550 million) of long-term
debt. The £550million includes two listed instruments of
£275 million each, as explained in note 17: the rst being
xed-to-oating rate notes where the oating rate becomes
effective from November2025; the second being xed rate
notes maturing in December2022. In addition, the Group has
additional borrowings of £50 million and $125 million, which
were drawn down in 2020. The Group has no other signicant
borrowings or other assets or liabilities carrying interest
rate risk, other than the facilities and Letters of Credit
outlined in note 30.
(d) Credit risk
The Group has exposure to credit risk, which is the risk that
acounterparty will suffer adeterioration in actual or perceived
nancial 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 specic
nature of reinsurance markets and the extent of investments
held in nancial markets. In both markets, the Group interacts
with anumber of counterparties who are engaged in similar
activities with similar customer proles, 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 signicant number of counterparties to meet the Group’s
agreed contractual terms and obligations.
Covid-19 has caused economic disruption around the world
with many businesses and individuals forced to alter, reduce
or cease business activity in light of government lockdowns.
As a result, the risk that counterparties fail to meet their
nancial obligations as they fall due, for whatever reason,
has increased.
Key areas of exposure to credit risk include:
A reinsurers’ share of insurance liabilities;
3 Management of risk
3.3 Financial risk
(c) Interest rate risk continued
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.
The Group’s maximum exposure to credit risk is
represented by the carrying values of nancial 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 signicant concentration of credit risk with respect
to loans and receivables, as the Group has alarge 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 areinsurer 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 Credit Committee assesses the creditworthiness
of all reinsurers by reviewing credit grades provided by rating
agencies and other publicly available nancial information
detailing their nancial strength and performance as well as
detailed analysis from the Group’s analysis team. The nancial
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.
The Committee 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.
This information is used to update the reinsurance
purchasing strategy.
Individual operating units maintain records of the payment
history for signicant 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.
142 Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Notes to the
consolidated nancial
statements
The Group also mitigates counterparty credit risk by concentrating debt and xed income investments in a portfolio of 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 2020 Note
AAA
$m
AA
$m
A
$m
BBB
$m
Other/
non-rated
$m
Total
$m
Debt and xed income securities 17 411.3 1,948.2 1,586.7 1,426.8 101.5 5,474.5
Reinsurance assets 16 1,079.7 946.7 1,396.0 188.7 33.5 3,644.6
Cash and cash equivalents 21 134.0 98.9 1,339.6 3.5 1.2 1,577.2
Total 1,625.0 2,993.8 4,322.3 1,619.0 136.2 10,696.3
As at 31 December 2019 Note
AAA
$m
AA
$m
A
$m
BBB
$m
Other/
non-rated
$m
Total
$m
Debt and xed income securities 17 629.7 2,083.7 1,259.1 972.8 44.6 4,989.9
Reinsurance assets 16 1,236.8 606.5 1,525.5 2.3 15.8 3,386.9
Cash and cash equivalents 21 101.7 230.2 75 4.1 24.3 5.6 1,115.9
Total 1,968.2 2,920.4 3,538.7 999.4 66.0 9,492.7
Within the debt and xed income portfolios, which include debt securities, deposits with credit institutions and cash equivalent
assets, there are exposures to a range of government borrowers, on either a direct or guaranteed basis, and banking institutions.
The Group, together with its investment managers, closely manages its geographical exposures across government issued and
supported debt.
The largest aggregated counterparty exposure related to debt and xed income securities holdings at 31December2020 of
$920million is to the US Treasury (2019:$1,279million).
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 31December2020 is to Kiskadee. The fully collateralised recoverable from Kiskadee represents 19% (2019:17%)
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 31December2020 and 2019.
(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 signicant proportion of the Group’s investments is in highly liquid assets which could be converted to cash in aprompt 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.
3 Management of risk
3.3 Financial risk
(d) Credit risk continued
143Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Notes to the
consolidated nancial
statements
The main focus of the investment portfolio is on high-quality, short-duration debt and xed income securities and cash. There
are no signicant holdings of investments with specic repricing dates. Notwithstanding the regular interest receipts and also
the Group’s ability to liquidate these securities and the majority of its other nancial instrument assets for cash in aprompt and
reasonable manner, the contractual maturity prole of the fair value of these securities at 31December is as follows.
Fair values at balance sheet date analysed by contractual maturity
Less than
one year
$m
Between one
and two years
$m
Between two
and five years
$m
Over
five years
$m
2020
total
$m
2019
total
$m
Debt and xed income securities 1,560.0 1,435.2 2,050.8 428.5 5,474.5 4,989.9
Cash and cash equivalents 1, 577.2 – – – 1, 577. 2 1,115.9
Total 3,137.2 1,435.2 2,050.8 428.5 7,0 51.7 6,105.8
The Group’s equities and investment 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.
There has been an increase in claims net of reinsurance recoveries in 2020 which are mainly attributed to Covid-19 as described
in note 23. This has increased the liquidity requirement to pay for these claims. The Group has actively monitored and taken
actions to further strengthen the liquidity position. In April 2020, the Group announced the decision to withdraw the 2019 nal
dividend and that the Group would not propose an interim dividend payment, or conduct any further share buybacks in 2020.
In May 2020, the Group successfully raised £375 million ($459.5 million) through a non-pre-emptive placing of new ordinary
shares. The proceeds of the placing will be used to respond to growth opportunities and rate improvement, particularly in
big-ticket lines, and to further strengthen our capital buffers.
During the year, the Group has drawn down $193 million cash from its revolving credit facility in order to maximise access to
liquidity during a period of uncertainty and signicant volatility in nancial markets.
The available headroom of working capital is monitored through the use of a detailed Group cash ow forecast which is reviewed
by management quarterly, or more frequently as required.
Following the certainty provided by the Supreme Court Judgment in January 2021, the Group is aiming to settle Covid-19 and
business interruption related claims as quickly as possible. This may mean that there is a delay between claims settlement and
recovery under our reinsurance arrangements. The Group has forecast a range of scenarios and has plans in place to navigate
any liquidity timing differences.
Average contractual maturity analysed by denominational currency of investments as at 31 December
2020
years
2019
years
US Dollar 3.04 3.30
Sterling 2.82 3.26
Euro 2.71 2.26
Canadian Dollar 2.02 1.82
3 Management of risk
3.3 Financial risk
(e) Liquidity risk continued
144 Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Notes to the
consolidated nancial
statements
The following is an analysis by liability type of the estimated timing of net cash ows 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 differ materially from the disclosure below.
Liquidity requirements to settle estimated profile of gross claim liabilities onbalance sheet
2020
Within
one year
$m
Between one
and two years
$m
Between two
and five years
$m
Over
five years
$m
2020
total
$m
Reinsurance inwards 1,168. 2 561.4 5 07. 5 154.1 2,391.2
Property – marine and major assets 78.3 55.8 46.8 14.8 195.7
Property – other assets 444.0 364.0 151.8 52.6 1,012.4
Casualty – professional indemnity 730.2 490.0 519.2 137.1 1,876.5
Casualty – other risks 650.7 338.7 278.5 74.3 1,342.2
Other* 265.2 95.3 87.4 25.5 473.4
Total 3,336.6 1,905.2 1,591.2 458.4 7, 291.4
2019
Within
one year
$m
Between one
and two years
$m
Between two
and five years
$m
Over
five years
$m
2019
total
$m
Reinsurance inwards 969.2 805.2 594.8 179.3 2,548.5
Property – marine and major assets 76.9 47. 0 42.8 13.1 179.8
Property – other assets 344.0 202.1 127.8 44.7 718.6
Casualty – professional indemnity 505.8 468.3 434.7 301.6 1,710.4
Casualty – other risks 339.8 201.7 213.3 62.4 817. 2
Other* 166.9 58.3 56.8 19.5 301.5
Total 2,402.6 1,782.6 1,470.2 620.6 6,276.0
*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 prole 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 uctuations in exchange rates. The Group operates internationally and therefore is
exposed to the nancial impact of uctuations 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 classied in two main categories:
A operational foreign exchange exposure arises from the conversion of foreign currency transactions resulting from the
activities of entering into insurance, investment and operational contracts in a currency that is different to each respective
entity’s functional currency; and
A structural foreign exchange exposure arises from the translation of the Group’s net investment in foreign operations to the
US Dollar, the Group’s reporting currency.
Operational currency risk
Operational foreign exchange risk is principally managed within the Group’s individual entities by broadly matching assets
and liabilities by currency and liquidity. Due attention is paid to local regulatory solvency and risk-based capital requirements.
All foreign currency derivative transactions with external parties are managed centrally.
The Group does not hedge operational foreign exchange risk arising from the accounting mismatch due to the translation of
monetary and non-monetary items. Non-monetary items including unearned premiums, deferred acquisition costs and reinsurers’
share of unearned premiums, are recorded at historical transaction rates and are not remeasured at the reporting date. Monetary
items including claims reserves, reinsurers’ share of claims reserves, and investments are remeasured at each reporting date at
the closing rates.
3 Management of risk
3.3 Financial risk
(e) Liquidity risk continued
145Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Notes to the
consolidated nancial
statements
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 dened
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 does not affect income statement unless the related foreign operation is disposed of;
A the currency translation gains and losses have no cash ow.
In periods of signicant 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 prole of the Group’s assets and liabilities is as follows:
As at 31 December 2020
US Dollar
$m
Sterling
$m
Euro
$m
Other
$m
2020
$m
Goodwill and intangible assets 141.1 146.0 7.7 4.1 298.9
Property, plant and equipment 35.3 49.1 22.4 2.6 109.4
Investments in associates – 4.9 – – 4.9
Deferred income tax 26.4 37.1 7. 2 – 70.7
Deferred acquisition costs 240.0 116.3 63.5 19.4 439.2
Financial assets carried at fair value 4,159.3 1,221.9 6 07.0 128.6 6,116.8
Reinsurance assets 2,525.4 746.7 221.2 151.3 3,644.6
Loans and receivables including insurance receivables 938.6 533.1 99.7 84.0 1,655.4
Current tax asset 2.3 – 1.0 – 3.3
Cash and cash equivalents 754.0 493.0 197.7 132.5 1,577. 2
Total assets 8,822.4 3,348.1 1, 227.4 522.5 13,920.4
Employee retirement benet obligations – 73.5 – – 73.5
Deferred tax – – 2.7 – 2.7
Insurance liabilities 6,133.5 1,771.3 9 07.0 301.6 9,113.4
Financial liabilities 125.0 821.3 0.4 – 946.7
Current tax – 10.0 20.4 – 30.4
Trade and other payables 706.4 456.4 154.3 82.7 1,399.8
Total liabilities 6,964.9 3,132.5 1,084.8 384.3 11,566.5
Total equity 1, 8 57.5 215.6 142.6 138.2 2,353.9
As at 31 December 2019
US Dollar
$m
Sterling
$m
Euro
$m
Other
$m
2019
$m
Goodwill and intangible assets 87.1 188.1 – 2.8 278.0
Property, plant and equipment 38.8 66.4 21.4 1.8 128.4
Investments in associates – 8.6 – – 8.6
Deferred income tax 51.9 20.4 4.6 – 76.9
Deferred acquisition costs 262.2 126.6 52.4 14.9 456.1
Financial assets carried at fair value 3,791.3 1,157.7 400.7 189.3 5,539.0
Reinsurance assets 2,384.6 349.7 143.7 508.9 3,386.9
Loans and receivables including insurance receivables 856.8 503.8 97.8 97.9 1,556.3
Current tax asset 0.6 – 4.1 – 4.7
Cash and cash equivalents 524.0 310.9 178.0 103.0 1,115.9
Total assets 7,997.3 2,732.2 902.7 918.6 12,550.8
Employee retirement benet obligations – 55.1 – – 55.1
Deferred tax – – 0.4 – 0.4
Insurance liabilities 5,333.2 1,316.7 689.1 755.5 8,094.5
Financial liabilities 131.1 5 97.7 – – 728.8
Current tax 1.9 43.5 16.6 – 62.0
Trade and other payables 943.5 287. 3 146.2 43.3 1,420.3
Total liabilities 6,409.7 2,300.3 852.3 798.8 10,361.1
Total equity 1, 5 87.6 431.9 50.4 119.8 2,189.7
3 Management of risk
3.3 Financial risk
(f) Currency risk continued
146 Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Notes to the
consolidated nancial
statements
Sensitivity analysis
As at 31December2020, the Group used closing rates of exchange of $1: £0.73 and $1: €0.82 (2019:$1:£0.76 and $1:€0.89).
The Group performs sensitivity analysis based on a 10% strengthening or weakening of the US Dollar against Sterling and
the Euro.
This analysis assumes that all other variables, in particular interest rates, remain constant and that the underlying valuation of
assets and liabilities in their base currency is unchanged. The process of deriving the undernoted estimates takes account of the
linear retranslation movements of foreign currency monetary assets and liabilities together with the impact on the retranslation of
those Group entities with non-US Dollar functional currency nancial statements.
During the year, the Group transacted in a number of over-the-counter forward currency derivative contracts. The impact of these
contracts on the sensitivity analysis is negligible.
As at 31 December
December 2020
effect on equity
after tax
$m
December 2020
effect on profit
before tax
$m
December 2019
effect on equity
after tax
$m
December 2019
effect on profit
before tax
$m
Strengthening of Sterling 83.6 8.9 64.1 28.6
Weakening of Sterling (68.4) (7.3) (52.4) (23.4)
Strengthening of Euro 27. 2 (0.9) 21.2 6.3
Weakening of Euro (22.3) 0.7 (15.3) (5.2)
(g) Limitations of sensitivity analysis
The sensitivity information given in notes 3.3 (a) to (f) demonstrates the estimated impact of achange in amajor input assumption
while other assumptions remain unchanged. In reality, there are normally signicant 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 benet scheme sensitivities
presented in note 27 to these nancial 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 nancial position of the Group may vary at the time that any actual market movement occurs. For example, the Group’s
nancial risk management strategy aims to manage the exposure to market uctuations. 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 agoing 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 efcient cost of capital;
A to comply with all regulatory requirements by an appropriate margin;
A to maintain nancial 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 dened 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 31December2020, the available capital under IFRS was $2,431 million (2019:$2,276million), comprising net tangible asset
value of $2,055million (2019:$1,912million) and subordinated debt of $376million (2019: $364million).
3 Management of risk
3.3 Financial risk
(f) Currency risk continued
147Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Notes to the
consolidated nancial
statements
The Group can source additional funding from revolving credit and Letter of Credit (LOC) facilities. Standby funding from these
sources comprised $946million at 31December2020 (2019:$800million).
The Group’s borrowing facilities include nancial 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.
In order to take advantage of opportunities for protable growth in wholesale and reinsurance markets, as a result of capital
contraction and rate improvement across the market following the uncertainty caused by Covid-19, the Group raised £375 million
in capital in May 2020 in the form of an equity placement. This has provided additional exibility throughout the year to respond to
growth opportunities and rate improvement, particularly in big-ticket lines.
The Board ensures that the use and allocation of capital are given a primary focus in all signicant 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 prole 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 maybe drawn in cash up to £450 million (under a revolving
credit facility) and utilised as LOC up to $266 million. The facility was renewed during 2020, enabling the Group to utilise
the LOC as Funds at Lloyd’s to support underwriting on the 2020, 2021 and 2022 years of account. The revolving credit
facility is available until the end of 2022. As at 31 December 2020, $266 million was utilised by way of LOC to support
the Funds at Lloyd’s requirement and $193.4 million cash drawings outstanding to support general trading activities
(2019: $50 million and $nil respectively);
A during the year, the Group sourced an additional $65 million of funding in the form of a Funds at Lloyd’s facility. Under this
facility assets are pledged with the Corporation of Lloyd’s on the Group’s behalf, providing regulatory tier 1 capital. As at
31 December 2020 the facility was fully drawn;
A £275million of xed-to-oating rate subordinated notes that are classied as Tier 2 debt. This was raised in November2015
and matures in 2045. The debt is rated BBB- by S&P and Fitch;
A £275million of xed rate senior notes raised in March2018 and maturing in 2022. The debt is rated BBB+ by S&P and Fitch;
A External Names – 27.4% of Syndicate 33’s capacity is capitalised by third parties paying aprot share of approximately 20%;
A Syndicate 6104 at Lloyd’s – with a capacity of £23million for the 2021 year of account (2020 year of account: £45million).
This Syndicate is wholly backed by external members and takes pure years 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 – these are reinsurance arrangements that allow the Group to increase the amount of premium
it writes.
Financial strength
The nancial strength ratings of the Group’s signicant 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 benets from an A.M. Best rating of A (Excellent). In addition, the Syndicate also benets from the Lloyd’s ratings of
A(Excellent) from A.M. Best, A+ (Strong) from S&P and AA- (Very strong) from Fitch.
Capital performance
The Group’s main capital performance measure is the achieved return on equity (ROE). This marker best aligns the aspirations of
employees and shareholders. As variable remuneration, the vesting of options and longer-term investment plans all relate directly
to ROE, 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
148 Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Notes to the
consolidated nancial
statements
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 sufcient capital at
all times throughout the year to meet the BMA’s requirements. The BMA is part-way through phasing in capital requirements
changes, which started at the 2019 year-end and will continue until the 2021 year-end. The Group expects to maintain an
appropriate margin of solvency after these changes have taken effect.
The Solvency II regime came into force in Europe on 1January2016. 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 proles are sufciently
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 specically 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 nancial condition report, as part of its regulatory ling with the BMA. This is a public document and sets out the nancial
performance and solvency position of the Group in accordance with the economic balance sheet return led 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 nancial
statements. Due to the Group’s operating model, there is an unquantiable risk that this division of taxing rights could be altered
materially, either by a change to the tax residence, or permanent establishment prole, of Hiscox Ltd or its principal subsidiaries;
or due to the re-pricing or re-characterisation for tax purposes of transactions between members of the Group, under local
transfer pricing or related tax legislation. The Group seeks to manage this risk by:
A maintaining appropriate internal policies and controls over its operations worldwide;
A monitoring compliance with these policies on an ongoing basis;
A adhering to internationally recognised best practice in determining the appropriate division of prots between
taxing jurisdictions;
A taking additional advice and obtaining legal opinions from local third-party professionals with the necessary experience
in the particular area.
In particular, from March 2020, government imposed Covid-19-related travel restrictions and guidance increased the risk for
multinational enterprises in general, including the Group, of tax exposures arising from the unintended creation of a tax permanent
establishment or corporate residence. The Group actively manages both residence and permanent establishment risk through
well-established internal procedures, and continues to monitor its position carefully.
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 $31million and $89million. 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
149Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Notes to the
consolidated nancial
statements
4 Operating segments
The Group’s four primary business segments are identied as follows:
A Hiscox Retail brings together the results of the Group’s retail business divisions in the UK, Europe, USA and Asia, as well as
Hiscox Special Risks. 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
insurance business written through Syndicate 33. Hiscox Europe excludes the kidnap and ransom business written by
Hiscox SA. Hiscox Special Risks has traditionally comprised the specialty and ne art lines written through Hiscox Insurance
Company (Guernsey) Limited and the European kidnap and ransom business written by Hiscox SA and Syndicate 33.
Hiscox USA comprises commercial, property and specialty business written by Hiscox Insurance Company Inc. and
Syndicate 3624, however, in late 2020 we restructured our Special Risks division, integrating its activities with Hiscox Europe,
Hiscox USA and Hiscox London Market.
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,
excluding the kidnap and ransom business. In addition, the segment includes elements of business written by Syndicate
3624 being auto physical damage and aviation business, however these are in run-off.
A Hiscox Re & ILS is the reinsurance division of the Hiscox Group, combining the underwriting platforms in Bermuda and
London. The segment comprises the performance of Hiscox Insurance Company (Bermuda) Limited, excluding the internal
quota share arrangements, with the reinsurance contracts written by Syndicate 33. In addition, the healthcare and casualty
reinsurance contracts written in the Bermuda hub 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 nance costs and administrative costs associated with Group management activities and
intragroup borrowings, as well as all foreign exchange gains and losses. The segment includes results from run-off portfolios
where the Group has ceded all insurance risks to third-party reinsurers.
All amounts reported below 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 prot before tax.
In 2020, the Group has further rened how it manages and evaluates the performance of the business units. All foreign exchange
gains and losses are managed centrally. Therefore the foreign gains and losses are now fully allocated to and presented in the
segmental reporting within Corporate Centre. Comparative gures have been re-presented to reect this change, along with the
previously reported gures where the foreign exchange gains and losses were allocated to each segment to aid comparability.
This change has no effect on the Group IFRS results or nancial position.
150 Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Notes to the
consolidated nancial
statements
(a) Prot before tax by segment
Year to 31 December 2020
Year to 31 December 2019
(restated)*
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 2,266.3 1,023.4 743.4 – 4,033.1 2,196.3 9 67.9 866.5 – 4,030.7
Net premiums
written 1,986.8 570.9 192.7 – 2,750.4 1,9 57.5 504.6 216.7 – 2,678.8
Net premiums
earned 1,975.5 548.6 228.1 – 2,752.2 1,895.1 527. 9 212.6 – 2,635.6
Investment result 107.3 56.6 33.6 – 197. 5 133.9 50.6 38.5 – 223.0
Other income 21.4 13.8 12.5 2.5 50.2 29.0 9.0 12.7 2.4 5 3.1
Total income 2,104.2 619.0 274.2 2.5 2,999.9 2,058.0 5 87.5 263.8 2.4 2,911.7
Claims and claim
adjustment
expenses, net
of reinsurance (1,395.6) (294.4) (232.7) – (1,922.7) (929.7) (3 56.1) (290.3) – (1,576.1)
Expenses for
the acquisition
of insurance
contracts (539.0) (148.4) (26.5) – (713.9) (4 97. 0 ) (147.9) (16.1) – (661.0)
Operational
expenses (405.9) (78.9) (49.1) (39.1) (573.0) (460.9) (59.2) (63.6) (9.8) (593.5)
Net foreign
exchange
(losses)/gains – – – (14.5) (14.5) – – – 8.5 8.5
Total expenses (2,340.5) (521.7) (308.3) (53.6) (3,224.1) (1,8 87.6) (563.2) (370.0) (1.3) (2,822.1)
Results of
operating activities (236.3) 97.3 (34.1) (51.1) (224.2) 170.4 24.3 (106.2) 1.1 89.6
Finance costs (1.3) (0.1) (1.0) (41.6) (44.0) (1.2) (1.0) (1.4) (33.0) (36.6)
Share of (loss)/
prot of associates
after tax – – – (0.3) (0.3) – – – 0.1 0.1
(Loss)/prot
before tax (237.6 ) 97.2 (35.1) (93.0) (268.5) 169.2 23.3 (107.6) (31.8) 5 3.1
* In 2020, the Group has further rened how it manages and evaluates the performance of the different businesses segments. All foreign exchange gains and
losses are therefore allocated to, and managed by, Corporate Centre. To align external reporting to management reporting, the foreign exchange gains and losses
are presented in the segmental reporting within Corporate Centre. Comparative gures have been re-presented to reect this management view, along with the
previously reported gures where the foreign exchange gains and losses were allocated to each segment to aid comparability. This change has no effect on the
Group IFRS results or nancial position.
4 Operating segments continued
151Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Notes to the
consolidated nancial
statements
(a) Prot before tax by segment continued
The following charges are included within the consolidated income statement:
Year to 31 December 2020 Year to 31 December 2019
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 16.4 2.6 2.7 0.1 21.8 16.6 2.5 1.0 0.6 20.7
Amortisation of
intangible assets 26.4 4.2 1.0 – 31.6 16.3 4.8 1.2 0.1 22.4
Impairment of
tangible assets – – – – – 0.5 0.6 0.3 0.1 1.5
Impairment of
intangible assets 0.2 – – – 0.2 – – – – –
Total 43.0 6.8 3.7 0.1 53.6 33.4 7.9 2.5 0.8 44.6
The Group’s wholly owned subsidiary, Hiscox Syndicates Limited, oversees the operation of Syndicate 33 at Lloyd’s. The Group’s
percentage participation in Syndicate 33 can uctuate from year-to-year and, consequently, presentation of the results at the
100% level removes any distortions arising therefrom.
Year to 31 December 2020
Year to 31 December 2019
(restated)*
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
100% ratio analysis
Claims ratio (%) 72.2 54.1 99.0 – 70.0 48.9 66.3 132.8 – 60.4
Expense ratio (%) 47.8 39.6 32.8 – 44.5 50.4 39.3 37.1 – 46.4
Combined ratio (%) 120.0 93.7 131.8 – 114.5 99.3 105.6 169.9 – 106.8
As previously
reported
Net foreign
exchange
gains/(losses) – – – – – 9.2 7.1 13.8 (21.6) 8.5
Prot/(loss)
before tax – – – – – 178.4 30.4 (93.8) (61.9) 53.1
100% ratio analysis
Claims ratio (%) – – – – – 48.9 66.3 132.8 – 60.4
Expense ratio (%) – – – – – 49.8 38 .1 31.1 – 45.3
Combined ratio (%) – – – – – 98.7 104.4 163.9 – 105.7
*See note 4 on page 150 for further details.
4 Operating segments
152 Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Notes to the
consolidated nancial
statements
(a) Prot before tax by segment continued
The claims ratio is calculated as claims and claim adjustment expenses, net of reinsurance, as aproportion of net premiums
earned. The expense ratio is calculated as the total of expenses for the acquisition of insurance contracts, operational expenses,
including prot-related pay as aproportion of net premiums earned. The combined ratio is the total of the claims and expenses
ratios. All ratios are calculated using the 100%results and excludes a run-off portfolio, where the Group has ceded all insurance
risks to a third-party reinsurer, included within Corporate Centre.
Costs allocated to Corporate Centre are non-underwriting related costs and are not included within the combined ratio. The
impact on prot before tax of a1% 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 2020 Year to 31 December 2019
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 20.1 7. 5 2.7 19.3 7. 2 2.5
At Group level
1% change in claims or expense ratio 19.8 5.5 2.3 19.0 5.3 2.1
(b) 100% operating result by segment
Year to 31 December 2020
Year to 31 December 2019
(restated)*
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 2,303.3 1,410.5 818.5 – 4,532.3 2, 237.1 1,334.3 958.8 – 4,530.2
Net premiums
written 2,015.1 788.1 224.9 – 3,028.1 1,994.7 705.6 254.6 – 2,954.9
Net premiums
earned 2,007.6 753.1 269.4 – 3,030.1 1,934.4 721.6 249.4 – 2,905.4
Investment result 113.8 60.1 35.6 – 209.5 128.7 58.0 45.4 – 232.1
Other income 16.6 10.3 11.3 2.4 40.6 25.6 5.1 11.7 2.4 44.8
Claims and claim
adjustment
expenses, net
of reinsurance (1,449.1) (407. 3) (266.7) – (2,123.1) (945.5) (478.6) (331.3) – (1,755.4)
Expenses for the
acquisition of
insurance contracts (550.6) (200.0) (32.9) – (783.5) (509.2) (205.1) (20.7) – (735.0)
Operational
expenses (409.8) (98.5) (55.6) (38.9) (602.8) (464.9) (78.2) (71.6) (9.8) (624.5)
Net foreign
exchange
(losses)/gains – – – (12.6) (12.6) – – – 11.1 11.1
Results of
operating activities (271.5) 117.7 (38.9) (49.1) (241.8) 16 9.1 22.8 (117.1) 3.7 78.5
*See note 4 on page 150 for further details.
Segment results at the 100% level presented above differ from those presented at the Group’s share at note 4(a) solely as aresult
of the Group not owning 100% of the capacity of Syndicate 33 at Lloyd’s.
4 Operating segments
153Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Notes to the
consolidated nancial
statements
4 Operating segments continued
(c) Geographical information
The Group’s operational segments underwrite business domestically in Bermuda and from locations in the UK, USA, Guernsey,
France, Germany, Belgium, The Netherlands, Spain, Portugal, Ireland, Singapore and Thailand.
The following table provides an analysis of the Group’s gross premium revenues earned by material geographical location from
external parties:
Gross premium revenues earned from external parties
Year to 31 December 2020 Year to 31 December 2019
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 768.9 54.1 28.8 – 851.8 721.3 23.1 14.0 – 758.4
Europe 438.7 53.5 24.5 – 516.7 438.4 42.2 17.6 – 498.2
USA 918.7 695.1 512.9 – 2,126.7 858.6 746.4 517.6 – 2,122.6
Rest of world 113.4 225.7 236.9 – 576.0 100.7 156.4 295.6 – 552.7
2,239.7 1,028.4 80 3.1 – 4,071.2 2,119.0 9 6 8.1 844.8 – 3,931.9
The following table provides an analysis of the Group’s non-current assets by material geographical location excluding nancial
instruments, deferred tax assets, post-employment benet assets, and rights arising under insurance contracts:
Non-current assets
2020
total
$m
2019
total
$m
UK 250.5 263.3
Europe 12.8 21.4
USA 138.6 120.8
Rest of world 11.3 9.5
413.2 415.0
5 Net asset value per share and net tangible asset value per share
2020
net asset value
(total equity)
$m
2020
net asset value
per share
cents
2019
net asset value
(total equity)
$m
2019
net asset value
per share
cents
Net asset value 2,353.9 689.0 2,189.7 768.2
Net tangible asset value 2,055.0 601.5 1,911.7 670.6
The net asset value per share is based on 341,647,634 shares (2019:285,051,997 shares), being the shares in issue at
31December2020, less those held in treasury and those held by the Group Employee Benet Trust.
Net tangible assets comprise total equity excluding intangible assets. The net asset value per share expressed in pence is
503.9p (2019:580.1p).
154 Hiscox Ltd Report and Accounts 2020
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A balanced business
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Governance
Chapter 6 113
Financial summary
Notes to the
consolidated nancial
statements
6 Return on equity
2020
$m
2019
$m
(Loss)/prot for the year (all attributable to owners of the Company) (293.7) 48.9
Opening total equity 2,189.7 2,259.0
Adjusted for the time-weighted impact of capital distributions and issuance of shares 307.8 (52.3)
Adjusted opening total equity 2,497.5 2,206.7
Return on equity (%) (11.8) 2.2
The return on equity is calculated by using prot for the period divided by the adjusted opening total equity. The adjusted opening
total equity represents the equity on 1January 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.
7 Investment result
The total investment result for the Group comprises:
Note
2020
$m
2019
$m
Investment income including interest receivable 107.4 123.7
Net realised gains on nancial investments at fair value through prot or loss 45.5 34.4
Net fair value gains on nancial investments at fair value through prot or loss 51.2 73.0
Investment result – nancial assets 8 204.1 231.1
Net fair value losses on derivative nancial instruments 19 (2.1) (2.2)
Investment expenses (4.5) (5.9)
Total result 197.5 223.0
8 Analysis of return on nancial investments
(a) The weighted average return on nancial investments for the year by currency, based on monthly asset values, was:
2020
%
2019
%
US Dollar 3.3 4.2
Sterling 2.3 3.5
Euro 0.3 0.2
Other 2.1 2.6
(b) Investment return
2020
return
$m
2020
yield
%
2019
return
$m
2019
yield
%
Debt and xed income securities 141.3 2.8 161.8 3.4
Equities and investment funds 58.4 10.8 61.4 13.3
Deposits with credit institutions/cash and cash equivalents 4.4 0.3 7.9 0.7
Investment result – nancial assets 204.1 2.8 231.1 3.6
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Governance
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Financial summary
Notes to the
consolidated nancial
statements
9 Other income and operational expenses
2020
$m
2019
$m
Agency-related income 22.1 28.6
Prot commission 1.5 3.9
Other underwriting income 2.5 0.9
Other income 24.1 19.7
Other income 50.2 53.1
Wages and salaries 188.7 192.3
Social security costs 33.1 33.9
Pension cost – dened contribution 13.1 16.7
Pension cost – dened benet 1.1 1.0
Share-based payments 10.3 3.6
Temporary staff costs 40.2 49.6
Travel and entertainment 6.2 20.6
Legal and professional 63.0 40.7
Ofce costs 15.7 12.7
Computer costs 58.6 70.4
Marketing expenses 59.4 88.9
Depreciation, amortisation and impairment 56.8 44.6
Other expenses 26.8 18.5
Operational expenses 573.0 593.5
Agency-related income relates to commission received from a non-Group insurer by an insurance intermediary (‘agency’) for
placement services and in limited cases claims handling services. Commission income associated with the placement services
are recognised at the point in time when the agency has satised 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 are recognised over time in line with the terms of the contractual arrangements.
Prot-commission income attributed to non-insurance entities, for example, Lloyd’s managing agent and ILS investment
managers, are 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 signicant reversal.
Other underwriting income represents results from the insurance-linked securities managed by the Group and other income
includes management fees which are recognised when the investment management services are rendered to the ILS funds.
Wages and salaries have been shown net of transfers to acquisition and claims expenses.
As a result of the disposals of MGA yacht business and the associated intangible assets and the RH Specialist vehicle insurance
customer relationships, the Group has derecognised the relevant assets and liabilities. Below is a table disclosing the impact to
the consolidated nancial statements following the disposals.
RH Specialist
vehicle insurance
$m
MGA yacht
$m
Total
$m
Total assets no longer recognised in the consolidated balance sheet ( 7. 0) (5.8) (12.8)
Costs on disposal – (0.1) (0.1)
Sale proceeds 10.2 2.7 12.9
Prot/(loss) recognised in the consolidated income statement 3.2 (3.2) –
10 Finance costs
Note
2020
$m
2019
$m
Interest charge associated with borrowings 17 28.6 28.7
Interest and expenses associated with bank borrowing facilities 10.7 3.2
Interest and charges associated with Letters of Credit 30 2.4 2.0
Other interest expenses
†
2.3 2.7
Finance costs 44.0 36.6
†
Including interest expenses on lease liabilities of $1.4 million (2019: $1.8 million).
156 Hiscox Ltd Report and Accounts 2020
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Remuneration
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Shareholder information
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Notes to the
consolidated nancial
statements
11 Auditor’s remuneration
Fees payable to the Group’s external auditor, PwC, its member rms and its associates (exclusive of VAT) include the following
amounts recorded in the consolidated income statement:
Group
2020
$m
2019
$m
Amounts receivable by the auditor and its associates in respect of:
The auditing of the accounts of the Group and its subsidiaries 3.3 3.2
All audit-related assurance services 0.4 0.3
All other non-audit services 0.1 –
3.8 3.5
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 2019
Cost 13.6 33.1 8.5 220.7 65.5 341.4
Accumulated amortisation and impairment
(5.2) – – (96.4) (35.2) (136.8)
Net book amount 8.4 33.1 8.5 124.3 30.3 204.6
Year ended 31 December 2019
Opening net book amount 8.4 33.1 8.5 124.3 30.3 204.6
Additions – – – 90.7 – 90.7
Amortisation charges – – – (17.7 ) (4.7) (22.4)
Foreign exchange movements (0.1) – – 4.8 0.4 5.1
Closing net book amount 8.3 33.1 8.5 202.1 26.0 278.0
At 31 December 2019
Cost 13.4 33.1 8.5 269.3 66.5 390.8
Accumulated amortisation and impairment (5.1) – – ( 67. 2) (40.5) (112.8)
Net book amount 8.3 3 3.1 8.5 202.1 26.0 278.0
Year ended 31 December 2020
Opening net book amount 8.3 33.1 8.5 202.1 26.0 278.0
Additions – – – 62.5 – 62.5
Disposals – – – – (12.8) (12.8)
Amortisation charges – – – (27.3 ) (4.3) (31.6)
Impairment charge – – – – (0.2) (0.2)
Foreign exchange movements 0.5 – – 4.6 (2.1) 3.0
Closing net book amount 8.8 33.1 8.5 241.9 6.6 298.9
At 31 December 2020
Cost 13.9 33.1 8.5 336.4 40.4 432.3
Accumulated amortisation and impairment (5.1) – – (94.5) (33.8) (133.4)
Net book amount 8.8 33.1 8.5 241.9 6.6 298.9
157Hiscox Ltd Report and Accounts 2020
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Remuneration
Chapter 5 107
Shareholder information
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Notes to the
consolidated nancial
statements
Goodwill
Goodwill is allocated to the Group’s cash-generating units (CGUs) identied according to the smallest identiable unit to which
cash ows are generated. $7.6million (2019:$7.2million) is allocated to the Lloyd’s corporate member entity CGU and $1.2million
(2019:$1.1million) is allocated to the CGUs within the Hiscox Retail business segment. Goodwill is considered to have an indenite
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 2020 there was no impairment charge on goodwill (2019: $5.2 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 projections based on nancial forecasts that reect the estimated impact of, and uncertainty related to, Covid-19.
A discount factor, based on a weighted average cost of capital (WACC) for the Group of 7.0% to 8.5%, depending on the underlying
currency (2019:7.0%), has been applied to the projections to determine the net present value. The outcome of the value in use
calculation is measured against the carrying value of the asset and, where the carrying value is in excess of the value in use, the
asset is written down to this amount.
Impairment assessments
The recent development of the pandemic, with reduced global economic activity, a surge in some insurance claims and the global
political response to try to contain transmission of the virus, indicate the potential for impairments.
To test the sensitivity to variances, management exed 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 anite 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 benets over an
indenite number of future periods. This assumption is reviewed annually to determine whether the asset continues to have an
indenite 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 ow projections based on business plans approved by management and discounted at the applicable WACC rate.
At 31 December 2020, the value in use exceeded the fair value less cost to sell or 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 benets will accrue to the Group over an indenite 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 indenite 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 based on business plans approved by management and discounted at the WACC rate. Key assumptions include new
business growth, retention rates, market cycle and claims ination. The results of the test show there is no impairment.
12 Goodwill and intangible assets continued
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Chapter 6 113
Financial summary
Notes to the
consolidated nancial
statements
(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
specic 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 benets that
are attributable to the asset will ow 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 aproject. 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 2020 (2019:$nil).
At 31December2020 there were $16.4 million of assets under development on which amortisation has yet to be charged
(2019:$79.8 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 identied separately and measured reliably and it is probable that they will be recovered by directly
related future prots. 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 identied, 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 the impairment of $0.2 million being
recognised (2019:no impairment).
(e) Disposals
During the year, the Group disposed of the yacht business and the associated intangible assets and the RH Specialist vehicle
insurance customer relationships. Please see note 9 for the result of the sale.
12 Goodwill and intangible assets
Intangible assets continued
159Hiscox Ltd Report and Accounts 2020
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Shareholder information
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Chapter 3 51
Governance
Chapter 6 113
Financial summary
Notes to the
consolidated nancial
statements
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 2019
Opening net book amount 25.1 3.3 33.0 77.9 0.9 140.2
Additions – 5.7 4.7 1.4 0.7 12.5
Disposals – (0.3) (3.9) – – (4.2)
Depreciation charge (1.2) (0.8) (4.7) (13.4) (0.6) (20.7)
Impairment – (0.7) (0.8) – – (1.5)
Foreign exchange movements 1.0 0.1 0.7 0.3 – 2.1
Closing net book amount 24.9 7. 3 29.0 66.2 1.0 128.4
At 31 December 2019
Cost 30.4 17.4 75.0 79.7 1.6 20 4.1
Accumulated amortisation and impairment (5.5) (10.1) (46.0) (13.5) (0.6) (75.7)
Net book amount 24.9 7. 3 29.0 66.2 1.0 128.4
Year ended 31 December 2020
Opening net book amount 24.9 7.3 29.0 66.2 1.0 128.4
Additions – 0.3 8.8 3.2 1.0 13.3
Disposals (0.5) (3.6) (4.5) (4.1) – (12.7)
Depreciation charge (1.2) (1.3) (5.6) (13.1) (0.6) (21.8)
Foreign exchange movements – (0.1) 1.1 1.2 – 2.2
Closing net book amount 23.2 2.6 28.8 53.4 1.4 109.4
At 31 December 2020
Cost 30.2 13.6 61.1 79.7 2.7 187. 3
Accumulated amortisation and impairment (7.0) (11.0) (32.3) (26.3) (1.3) ( 7 7.9)
Net book amount 23.2 2.6 28.8 53.4 1.4 109.4
The Group’s land and buildings assets relate to freehold property in the UK. There was an impairment charge during the year of
$nil (2019:$1.5million).
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 $0.8million (2019:$0.7million).
160 Hiscox Ltd Report and Accounts 2020
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Remuneration
Chapter 5 107
Shareholder information
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Notes to the
consolidated nancial
statements
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 31December2020, HDCM owned 72.6% of Syndicate 33 (2019:72.6%), and 100% of Syndicate 3624 (2019:100%). 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 nancial
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, dened prot 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 nancial statements.
(b) SPIs
The Kiskadee Diversied Fund and Kiskadee Select Fund (the Funds) were launched in 2014 to provide investment opportunities
to institutional investors in property catastrophe reinsurance and insurance-linked strategies. The Funds are managed by
Hiscox Re Insurance Linked Strategies Ltd (formerly known as Kiskadee Investment Managers Ltd) which is a wholly owned
subsidiary of the Group.
The Kiskadee Latitude Fund was launched in 2019 to give investors access to a more diverse portfolio of insurance and
reinsurance risks, with less focus on pure property catastrophe risk. The fund is managed by Hiscox Re Insurance Linked
Strategies Ltd which is a wholly owned subsidiary of the Group.
The Group determined that it does not control these entities. Hence they are not consolidated.
The Kiskadee Cadence Fund was launched in December 2019 to achieve attractive risk-adjusted returns by investing primarily in
a worldwide reinsurance and retrocession portfolio. The fund is a segregated account of Kiskadee ILS Fund SAC Ltd, which is
managed by Hiscox Re Insurance Linked Strategies Ltd, the wholly owned subsidiary of the Group. The Group determined that
it does control this entity and hence the fund is consolidated.
As at 31December2020, the Group recognised a nancial asset at fair value of $63.2 million (2019:$61.2million) in relation to
its investment in the Funds (note 17). In assessing the maximum exposure to loss from its interest in the Funds and SPIs, the
Group has determined it is no greater than the fair value recognised as at the balance sheet date. The total size of the funds were
$899 million at 31December2020 (2019:$888million). In addition to the return on the nancial asset, the Group also receives
fee income through Hiscox Re Insurance Linked Strategies Ltd and Hiscox Insurance Company (Bermuda) Limited, both wholly
owned subsidiaries, under normal commercial terms.
The Group is exposed to credit risk associated with reinsurance recoverables on risks fronted for the SPIs. Note 3.3(d) discusses
how the Group manages credit risk associated with reinsurance assets. The operations of the Funds and SPIs are nanced
through the issuance of preference shares to external investors. The Group does not intend to provide any further nancial
support to the Funds or SPIs.
161Hiscox Ltd Report and Accounts 2020
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A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Notes to the
consolidated nancial
statements
(c) Investments in associates
Year ended 31 December
2020
$m
2019
$m
At beginning of year 8.6 9.9
Disposals during the year – –
Impairments (3.2) (1.3)
Transfer to equity investments – (0.5)
Distributions received (0.2) (0.3)
Net prot from investments in associates (0.3) 0.1
Foreign exchange movements – 0.7
At end of year 4.9 8.6
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
2020
Associates incorporated in the UK and USA from 29% to 35% 18.6 15.9 12.2 (2.1)
Associates incorporated in Europe from 26% 4.4 2.3 2.5 1.2
Total at the end of 2020 23.0 18.2 14.7 (0.9)
2019
Associates incorporated in the UK and USA from 29% to 35% 18.7 13.7 12.2 (0.3)
Associates incorporated in Europe from 26% 4.4 2.8 2.6 0.8
Total at the end of 2019 23.1 16.5 14.8 0.5
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.
15 Deferred acquisition costs
2020 2019
Gross
$m
Reinsurance
$m
Net
$m
Gross
$m
Reinsurance
$m
Net
$m
Balance deferred at 1 January 456.1 (124.7) 331.4 455.9 (106.8) 349.1
Acquisition costs incurred in relation to insurance
contracts written 977.3 (269.8) 707.5 943.4 (301.4) 642.0
Acquisition costs expensed to the income statement* (1,002.9) 289.0 (713.9) (944.9) 283.9 (661.0)
Foreign exchange and other adjustments 8.7 (1.4) 7. 3 1.7 (0.4) 1.3
Balance deferred at 31 December 439.2 (106.9) 332.3 456.1 (124.7) 331.4
* Including unexpired risk reserve write-off of $6.6 million (2019: $nil).
The deferred amount of insurance contract acquisition costs attributable to reinsurers of $106.9 million (2019:$124.7 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:
2020
$m
2019
$m
Within one year 236.7 301.7
After one year 95.6 29.7
332.3 331.4
14 Subsidiaries, associates and interests in other entities continued
162 Hiscox Ltd Report and Accounts 2020
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Shareholder information
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Notes to the
consolidated nancial
statements
16 Reinsurance assets
Note
2020
$m
2019
$m
Reinsurers’ share of insurance liabilities 3,645.0 3,387.7
Provision for non-recovery and impairment (0.4) (0.8)
Reinsurance assets 23 3,644.6 3,386.9
The amounts expected to be recovered before and after one year, based on historical experience, are estimated as follows:
Within one year 1,798.1 1,510.9
After one year 1,846.5 1,876.0
3,644.6 3,386.9
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 again during the year of $0.4 million (2019:gain of $0.014 million) in respect of
previously impaired balances.
17 Financial assets and liabilities
Financial assets designated at fair value through prot or loss are measured at fair values, with all changes from one accounting
period to the next being recorded through the income statement.
Note
2020
$m
2019
$m
Debt and xed income securities 5,474.5 4,989.9
Equities and investment funds 578.3 486.4
Deposits with credit institutions – –
Total investments 6,052.8 5,476.3
Insurance-linked fund 63.2 61.2
Derivative nancial instruments 19 0.8 1.5
Total nancial assets carried at fair value 6,116.8 5,539.0
The effective maturity of the debt and xed income securities due within and after one year are as follows:
2020
$m
2019
$m
Within one year 1,560.0 1,447.3
After one year 3,914.5 3,542.6
5,474.5 4,989.9
Equities, investment funds and insurance-linked securities do not have any maturity dates. The effective maturity of all other
nancial assets are due within one year.
An analysis of the credit risk and contractual maturity proles of the Group’s nancial instruments is given in notes 3.3(d)
and 3.3(e).
Note
2020
$m
2019
$m
Derivative nancial instruments 19 0.6 0.6
Total nancial liabilities carried at fair value 0.6 0.6
2020
$m
2019
$m
Borrowings 943.3 725.6
Accrued interest on borrowings 2.8 2.6
Total nancial liabilities carried at amortised cost 946.1 728.2
163Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Notes to the
consolidated nancial
statements
All of the nancial liabilities carried at fair value are due within one year. The amounts owed to credit institutions relate to
outstanding investment trades in trust funds that are not available for offset against the same counterparty under cash
and cash equivalents. These positions would be rated A had they have been recorded under cash and cash equivalents.
The long-term debt is due after one year, with its accrued interest due within one year.
On 24November2015, the Group issued £275.0million 6.125% xed-to-oating rate callable subordinated notes due 2045,
with a rst call date of 2025.
The notes bear interest from, and including, 24November2015 at axed rate of 6.125% per annum annually in arrears starting
24November2016 up until the rst call date in November 2025 and thereafter at a oating rate of interest equal to three-month
LIBOR plus 5.076% payable quarterly in arrears on each oating interest payment date.
On 25November2015 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 14March2018, the Group issued £275.0million 2% notes due December2022. The notes will be redeemed on the maturity
date at their principal amount together with accrued interest.
The notes bear interest from, and including, 14March2018 at a xed rate of 2% per annum annually in arrears starting
14December2018 until maturity on 14December2022.
On 14March2018, 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 $822.6million (2019:$787.3million). The fair value measurement is classied
within Level 1 of the fair value hierarchy. The fair value is estimated by reference to the actively traded value on the stock exchanges.
The increase in the carrying value of the borrowings and accrued interest during the year comprises new short-term borrowings
of $180.6million (2019:$nil), the amortisation of the difference between the net proceeds received and the redemption
amounts of $0.8million (2019:$0.8million), the movement in accrued interest of $0.1million (2019:$0.2million) plus exchange
movements of $36.4million (2019:plus exchange movements of $27.8million).
Note 10 includes details of the interest expense for the year included in nancing costs.
Investments at 31December are denominated in the following currencies at their fair value:
2020
$m
2019
$m
Debt and xed income securities
US Dollars 3,774.0 3,464.6
Sterling 990.4 961.6
Euro and other currencies 710.1 563.7
5,474.5 4,989.9
Equities and investment funds
US Dollars 323.3 265.5
Sterling 229.3 195.5
Euro and other currencies 25.7 25.4
578.3 486.4
Total investments 6,052.8 5,476.3
17 Financial assets and liabilities continued
164 Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Notes to the
consolidated nancial
statements
18 Loans and receivables including insurance receivables
2020
$m
2019
$m
Gross receivables arising from insurance and reinsurance contracts 1,453.8 1,419.0
Provision for impairment (5.1) (7.4)
Net receivables arising from insurance and reinsurance contracts 1,448.7 1,411.6
Due from contract holders, brokers, agents and intermediaries 880.2 862.2
Due from reinsurance operations 568.5 549.4
1,448.7 1,411.6
Prepayments and accrued income 26.9 16.9
Other loans and receivables:
Net prot commission receivable 8.1 13.1
Accrued interest 26.5 22.3
Share of Syndicates’ other debtors’ balances 43.0 32.2
Other debtors including related party amounts 38.0 60.2
Total loans and receivables including insurance receivables 1,591.2 1,556.3
The amounts expected to be recovered before and after one year are estimated as follows:
Within one year 1,517.4 1,305.0
After one year 73.8 251.3
1,591.2 1,556.3
There is no signicant concentration of credit risk with respect to loans and receivables as the Group has alarge number of
internationally dispersed debtors. The Group has recognised arelease of $2.3million (2019: loss of $5.3million) for the impairment
of receivables during the year ended 31December2020. This is recorded under operational expenses in the consolidated
income statement. The carrying amounts disclosed above are reasonably approximate to the fair value at the reporting date.
19 Derivative nancial instruments
The Group entered into both exchange-traded and over-the-counter derivative contracts for a number of purposes during 2020.
The Group had the right and intention to settle each contract on a net basis. The assets and liabilities of these contracts at
31December2020 all mature within one year of the balance sheet date and are detailed below:
31 December 2020
Gross contract
notional amount
$m
Fair value
of assets
$m
Fair value
of liabilities
$m
Net balance
sheet position
$m
Derivative nancial instruments included on balance sheet
Foreign exchange forward contracts 56.2 0.8 (0.5) 0.3
Interest rate futures contracts 86.2 – (0.1) (0.1)
The foreign exchange forward contracts are represented by gross fair value of assets and liabilities as detailed below:
Gross fair value of assets 41.4 13.4 54.8
Gross fair value of liabilities (40.6) (13.9) (54.5)
0.8 (0.5) 0.3
31 December 2019
Gross contract
notional amount
$m
Fair value
of assets
$m
Fair value
of liabilities
$m
Net balance
sheet position
$m
Derivative nancial instruments included on balance sheet
Foreign exchange forward contracts 155.0 1.4 (0.6) 0.8
Interest rate futures contracts 82.4 0.1 – 0.1
The foreign exchange forward contracts are represented by gross fair value of assets and liabilities as detailed below:
Gross fair value of assets 124.5 28.0 152.5
Gross fair value of liabilities (123.1) (28.6) (151.7)
1.4 (0.6) 0.8
165Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Notes to the
consolidated nancial
statements
Foreign exchange forward contracts
During the current and prior year the Group entered into aseries 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 axed amount of the relevant currency for Sterling at pre-agreed future exchange rates. The Group
made aloss on these forward contracts of $1.7million (2019: loss of $1.5million) 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 aloss on these futures contracts
of $0.4million(2019:loss of $0.7million) as included in the investment result in note 7.
Equity index options
During the year, no equity index futures were purchased.
20 Fair value measurements
In accordance with IFRS 13 Fair Value Measurement, the fair value of financial instruments based on athree-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 2020
Level 1
$m
Level 2
$m
Level 3
$m
Total
$m
Financial assets
Debt and xed income securities 1,118.8 4,355.7 – 5,474.5
Equities and investment funds – 532.8 45.5 578.3
Insurance-linked funds – – 63.2 63.2
Derivative nancial instruments – 0.8 – 0.8
Total 1,118.8 4,889.3 108.7 6,116.8
Financial liabilities
Derivative nancial instruments – 0.6 – 0.6
Total – 0.6 – 0.6
As at 31 December 2019
Level 1
$m
Level 2
$m
Level 3
$m
Total
$m
Financial assets
Debt and xed income securities 1,495.9 3,494.0 – 4,989.9
Equities and investment funds – 467.9 18.5 486.4
Insurance-linked funds – – 61.2 61.2
Derivative nancial instruments – 1.5 – 1.5
Total 1,495.9 3,963.4 79.7 5,539.0
Financial liabilities
Derivative nancial instruments – 0.6 – 0.6
Total – 0.6 – 0.6
The levels of the fair value hierarchy are dened 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 signicant inputs are based on market observable data;
A Level 3 – fair values measured using valuation techniques for which signicant inputs are not based on market observable data.
The fair values of the Group’s nancial 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, which are included in equities and investment funds comprise aportfolio of stock investments in
trading entities which are invested in various quoted and unquoted investments. The fair value of these investment funds are
based on the net asset value of the fund as reported by independent pricing sources or the fund manager.
19 Derivative nancial instruments continued
166 Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Notes to the
consolidated nancial
statements
Included within Level 1 of the fair value hierarchy are certain government bonds, treasury bills, borrowings and exchange-traded
equities which are measured based on quoted prices in active markets. The fair value of the borrowings that is carried at
amortised cost, is estimated at $822.6million (2019:$787.3million) 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 anumber of methods including acomparison 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 alimited number of transactions for those securities and as such
the Group considers these instruments to have similar characteristics to those instruments classied as Level 2. Also included
within Level 2 are units held in collective investment vehicles investing in traditional and alternative investment strategies and
over-the-counter derivatives.
Level 3 contains investments in alimited partnership, unquoted equity securities and insurance-linked funds which have limited
observable inputs on which to measure fair value. Unquoted equities, including equity instruments in limited partnerships are
carried at fair value. Fair value is determined to be net asset value for the limited partnerships, and for the equity holdings it is
determined to be the latest available traded price. The effect of changing one or more inputs used in the measurement of fair
value of these instruments to another reasonably possible assumption would not be signicant. At 31December2020, the
insurance-linked fund of $63.2million represents the Group’s investment in the Kiskadee Funds (2019:$61.2million).
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. Signicant 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% decrease in fair value of the liabilities would increase the
fair value of the fund by $9.8million. Similarly, a 12% increase in fair value of liabilities would decrease the fair value of the fund
by $9.5million.
In certain cases, the inputs used to measure the fair value of anancial 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 classied based on the lowest level of input that is
signicant 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, there were no transfers made between Level 1, Level 2 or Level 3 of the fair value hierarchy.
20 Fair value measurements continued
167Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Notes to the
consolidated nancial
statements
The following table sets forth areconciliation of opening and closing balances for nancial instruments classied under Level 3
of the fair value hierarchy:
Financial assets
31 December 2020
Equities and
investment funds
$m
Insurance-
linked funds
$m
Total
$m
Balance at 1 January 18.5 61.2 79.7
Fair value gains or losses through prot or loss* (5.4) 2.7 (2.7)
Foreign exchange gains 1.9 – 1.9
Purchases 30.8 2.6 33.4
Settlements (0.3) (3.3) (3.6)
Closing balance 45.5 63.2 108.7
Unrealised gains and (losses) in the year on securities held at the end of the year (0.4) 2.7 2.3
* Fair value gains/(losses) are included within the investment result in the income statement for equities and investment funds and through other income for the
insurance-linked fund.
Financial assets
31 December 2019
Equities and
investment funds
$m
Insurance-
linked funds
$m
Total
$m
Balance at 1 January 18.9 55.2 74.1
Fair value gains or losses through prot or loss* 0.2 0.7 0.9
Foreign exchange gains 0.5 – 0.5
Purchases 0.7 5.5 6.2
Settlements (1.8) (0.2) (2.0)
Closing balance 18.5 61.2 79.7
Unrealised gains and (losses) in the year on securities held at the end of the year (0.1) 0.7 0.6
* Fair value gains/(losses) are included within the investment result in the income statement for equities and investment funds and through other income for the
insurance-linked fund.
21 Cash and cash equivalents
2020
$m
2019
$m
Cash at bank and in hand 1,448.8 903.2
Short-term deposits 128.4 212.7
Total 1,577. 2 1,115.9
The Group holds its cash deposits with awell-diversied range of banks and nancial 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.
20 Fair value measurements continued
168 Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Notes to the
consolidated nancial
statements
22 Share capital
31 December 2020 31 December 2019
Group
Share
capital
$m
Number
of shares
000
Share
capital
$m
Number
of shares
000
Authorised ordinary share capital of 6.5p (2019: 6.5p) 425.8 3,692,308 425.8 3,692,308
Issued ordinary share capital of 6.5p (2019: 6.5p) 38.7 353,955 3 4.1 296,108
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 2019 33,986 5 7,6 8 0 183,969
Employee share option scheme – proceeds from shares issued 28 3,595 –
Scrip dividends to owners of the Company 37 9,228 –
At 31 December 2019 34,051 70,503 183,969
Equity raise – May 2020 4,595 444,503 –
Employee share option scheme – proceeds from shares issued 13 1,446 –
At 31 December 2020 38,659 516,452 183,969
On 6 May 2020, the Group announced the successful completion of the non-pre-emptive placing of new ordinary shares of
6.5 pence each in the capital of the Company announced on 5 May 2020. The capital raise of 57,693,425 new ordinary shares
raised gross proceeds of approximately $463million or £375million. The issuance represents, in aggregate, approximately
19.48% of the existing issued ordinary share capital of Hiscox prior to the capital raise. As a consequence the shareholders’
equity of the Group and the available capital increased by approximately $452million and the total issued ordinary share capital
of $555million.
Contributed surplus is adistributable reserve and arose on the reverse acquisition of Hiscox plc on 12December2006.
During the year the decision was made not to pay a dividend to shareholders.
The Company relies on dividend streams from its subsidiary companies to provide the cash ow 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 Benet Trust purchased 1,958,864 shares (2019: nil) to facilitate the settlement of vesting
awards under the Group’s Performance Share Plan. As the trust is consolidated into the Group nancial 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 beneciaries of the Trust.
Equity structure of Hiscox Ltd Note
Number of
ordinary
shares in issue
(thousands)
2020
Number of
ordinary
shares in issue
(thousands)
2019
At 1 January 29 6,108 295,315
Equity raise – May 2020 57,693 –
Employee share option scheme – ordinary shares issued 154 339
Scrip dividends to owners of the Company – 454
At 31 December 353,955 296,108
All issued shares are fully paid.
169Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Notes to the
consolidated nancial
statements
Share options and Performance Share Plan awards
Performance Share Plan awards are granted to Directors and senior employees. No exercise price is attached to performance
plan awards, although their attainment is conditional on the employee completing three years’ service (the vesting period) and the
Group achieving targeted levels of returns on equity for pre-2018 awards and net asset value targets for awards from 2018. 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 acontractual option term of ten years.
The Group has no legal or constructive obligation to repurchase or settle the options in cash.
In accordance with IFRS 2, the Group recognises an expense for the fair value of share option 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 $10.3 million (2019: expense of $3.6 million). This comprises
an expense of $10.1 million (2019: expense of $2.7 million) in respect of Performance Share Plan awards and an expense of
$0.2 million (2019:expense of $0.9 million) in respect of share option awards. The Group has applied the principles outlined
in the Black-Scholes option pricing model when determining the fair value of each share option instrument.
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 2020 2019
Annual risk-free rates of return and discount rates (%) (0.12)-0.08 0.42-0.68
Long-term dividend yield (%) 2.19 2.39
Expected life of options (years) 3.25 3.25
Implied volatility of share price (%) 41.0 21.0
Weighted average share price (p) 819.7 1,555.3
The weighted average fair value of each share option granted during the year was 225.1p (2019:306.1p). The weighted average
fair value of each Performance Share Plan award granted during the year was 836.5p (2019:1,554.2p).
Movements in the number of share options and Performance Share Plan awards during the year and details of the balances
outstanding at 31December2020 for the Executive Directors are shown in the annual report on remuneration 2020 (see pages
80 to 87). The total number of options and Performance Share Plan awards outstanding is 9,349,986 (2019:9,293,491) of which
1,979,101 are exercisable (2019:2,682,751). The total number of SAYE options outstanding is 2,642,893 (2019:1,530,653).
The implied volatility assumption is based on historical data for periods of between ve and ten years immediately preceding
grant date.
For options issued after 1January2006, the assumptions regarding long-term dividend yield have been aligned to the progressive
dividend policy announced during the 2005 Rights Issue.
23 Insurance liabilities and reinsurance assets
Note
2020
$m
2019
$m
Gross
Claims reported and claim adjustment expenses 2,688.0 2,259.0
Unexpired risk reserve 31.5 –
Claims incurred but not reported 4,571.9 4,017.0
Unearned premiums 1,822.0 1,818.5
Total insurance liabilities, gross 9,113.4 8,094.5
Recoverable from reinsurers
Claims reported and claim adjustment expenses 976.7 814.6
Unexpired risk reserve 8.6 –
Claims incurred but not reported 2,227.7 2,10 6.4
Unearned premiums 431.6 465.9
Total reinsurers’ share of insurance liabilities 16 3,644.6 3,386.9
Net
Claims reported and claim adjustment expenses 1,711.3 1,444.4
Unexpired risk reserve 22.9 –
Claims incurred but not reported 2,344.2 1,910.6
Unearned premiums 1,390.4 1,352.6
Total insurance liabilities, net 5,468.8 4,707.6
22 Share capital continued
170 Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Notes to the
consolidated nancial
statements
The net amounts expected to be recovered and settled before and after one year, based on historical experience, are estimated
as follows:
2020
$m
2019
$m
Within one year 3,323.8 2,588.2
After one year 2,145.0 2,119.4
5,468.8 4,707.6
The gross claims reported, the claims adjustment expenses liabilities 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 2020 and 2019 are
not material.
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 ows.
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 nance 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 inationary environment.
The claim 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, specic 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 claim liabilities will ultimately settle are adjusted each reporting period to reect 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 2020 was 9.8%
above the best estimate (2019: 9.4%).
(b) Claims development tables
The development of insurance liabilities provides ameasure of the Group’s ability to estimate the ultimate value of claims.
The Group analyses actual claims development compared with previous estimates on an accident year basis. This exercise
is performed to include the liabilities of Syndicate 33 at the 100% level regardless of the Group’s actual level of ownership.
Analysis at the 100% level is required in order to avoid distortions arising from reinsurance to close arrangements which
subsequently increase the Group’s share of ultimate claims for each accident year, three years after the end of that accident year.
The top half of each table, on the following pages, illustrates how estimates of ultimate claim costs for each accident year have
changed at successive year ends. The bottom half reconciles cumulative claim costs to the amounts still recognised as liabilities.
Areconciliation 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
171Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Notes to the
consolidated nancial
statements
23.1 Insurance contracts assumptions
(b) Claims development tables continued
Insurance claims and claim adjustment expenses reserves – gross at 100%
Accident year
2011
$m
2012
$m
2013
$m
2014
$m
2015
$m
2016
$m
2017
$m
2018
$m
2019
$m
2020
$m
Total
$m
Estimate of ultimate
claims costs as
adjusted for foreign
exchange* at end
of accident year: 1,995.0 1,666.1 1,336.9 1,462.0 1,569.5 1,952.2 3,402.2 3,175.5 3,416.1 3,888.1 23,863.6
one year later 1,799.4 1,720.3 1,218.3 1,246.8 1,430.4 1,732.7 3,115.9 3,642.6 3,136.6 – 19,043.0
two years later 1,74 4.3 1,611.4 1,089.7 1,154.4 1,292.9 1,639.8 3,084.5 3,475.8 – – 15,092.8
three years later 1,757.5 1,616.5 1,025.5 1,10 5.0 1,287. 9 1,673.8 2,999.4 – – – 11,465.6
four years later 1,730.2 1,603.3 972.7 1,079.8 1,305.5 1,709.7 – – – – 8,401.2
ve years later 1,680.9 1,3 47.0 948.9 1,061.8 1,331.6 – – – – – 6,370.2
six years later 1,612.7 1,353.0 944.5 1, 0 47.4 – – – – – – 4,957.6
seven years later 1,575.0 1,330.8 946.7 – – – – – – – 3,852.5
eight years later 1,548.8 1,299.9 – – – – – – – – 2,848.7
nine years later 1,548.5 – – – – – – – – – 1,548.5
Current estimate of
cumulative claims 1,548.5 1,299.9 946.7 1,047.4 1,331.6 1,709.7 2,999.4 3,475.8 3,136.6 3,888.1 21,383.7
Cumulative
payments to date (1,529.2) (1,213.3) (894.4) (952.9) (1,114.4) (1,376.7) (2,244.3) (2,064.9) (1,19 4.4) (690.2) (13, 274.7)
Liability recognised
at 100% level 19.3 86.6 52.3 94.5 217.2 333.0 755.1 1,410.9 1,942.2 3,197.9 8,109.0
Liability recognised
in respect of prior
accident years at
100% level 171.0
Total gross liability to external parties at 100% level
†
8,280.0
*The foreign exchange adjustment arises from the retranslation of the estimates at each date using the exchange rate ruling at 31 December 2020.
†
Excluding the unexpired risk reserve of $43.4 million gross at 100%.
Reconciliation of 100% disclosures above to Group’s share – gross
Accident year
2011
$m
2012
$m
2013
$m
2014
$m
2015
$m
2016
$m
2017
$m
2018
$m
2019
$m
2020
$m
Total
$m
Current estimate of
cumulative claims 1,548.5 1,299.9 946.7 1,0 47.4 1,331.6 1,709.7 2,999.4 3,475.8 3,136.6 3,888.1 21,383.7
Less: attributable
to external Names (221.1) (163.7) (98.5) (10 8.1) (138.9) (179.2) (405.4) (437.0 ) (410.7) (467.5) (2,630.1)
Group’s share of
current ultimate
claims estimate 1, 3 27.4 1,136.2 848.2 939.3 1,192.7 1,530.5 2,594.0 3,038.8 2,725.9 3,420.6 18,753.6
Cumulative
payments to date (1,529.2) (1,213.3) (894.4) (952.9) (1,114.4) (1,376.7) (2,244.3) (2,064.9) (1,19 4.4) (690.2) (13,274.7)
Less: attributable
to external Names 213.3 155.5 92.7 99.2 117.1 148.1 301.4 254.3 156 .1 105.9 1,643.6
Group’s share of
cumulative payments (1,315.9) (1,057.8) (801.7) (853.7) ( 9 97. 3) (1,228.6) (1,942.9) (1,810.6) (1,038.3) (584.3) (11,631.1)
Liability for 2011
to 2020 accident
years recognised
on Group’s
balance sheet 11.5 78.4 46.5 85.6 195.4 301.9 6 51.1 1,228.2 1,687.6 2,836.3 7,122.5
Liability for accident
years before
2011 recognised
on Group’s
balance sheet 137. 4
Total Group liability to external parties included in balance sheet – gross** 7, 25 9.9
**This represents the claims element of the Group’s liabilities excluding the unexpired risk reserve of $31.5 million.
23 Insurance liabilities and reinsurance assets
172 Hiscox Ltd Report and Accounts 2020
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A closer look
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Remuneration
Chapter 5 107
Shareholder information
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Notes to the
consolidated nancial
statements
23 Insurance liabilities and reinsurance assets
23.1 Insurance contracts assumptions
(b) Claims development tables continued
Insurance claims and claim adjustment expenses reserves – net of reinsurance at 100%
Accident year
2011
$m
2012
$m
2013
$m
2014
$m
2015
$m
2016
$m
2017
$m
2018
$m
2019
$m
2020
$m
Total
$m
Estimate of ultimate
claims costs as
adjusted for foreign
exchange* at end
of accident year: 1,515.0 1,187.8 1,140.0 1,18 5.3 1,260.2 1,477.1 1, 8 57.2 1,815.3 1,812.1 2,234.8 15,484.8
one year later 1,401.3 1,046.7 1,012.5 1,042.1 1,166.0 1,338.7 1,639.3 1,855.5 1,751.7 – 12,253.8
two years later 1,3 46.1 971.5 910.2 946.6 1,069.4 1,266.3 1,623.1 1,801.6 – – 9,934.8
three years later 1,342.3 936.4 843.4 890.8 1,062.0 1,294.0 1,665.1 – – – 8,034.0
four years later 1,332.6 926.8 840.2 863.2 1,061.5 1,331.0 – – – – 6,355.3
ve years later 1,280.0 9 47. 5 812.7 8 42.1 1,088.8 – – – – – 4,971.1
six years later 1,243.8 936.3 812.0 836.7 – – – – – – 3,828.8
seven years later 1,210.2 913.9 811.5 – – – – – – – 2,935.6
eight years later 1,19 0.0 902.6 – – – – – – – – 2,092.6
nine years later 1,19 0.0 – – – – – – – – – 1,190.0
Current estimate of
cumulative claims 1,19 0.0 902.6 811.5 836.7 1,088.8 1,331.0 1,6 6 5.1 1,801.6 1,751.7 2,234.8 13,613.8
Cumulative
payments to date (1,178.1) (833.5) (764.7) (722.3) (880.2) (1,04 6.1) (1, 257.1) (1,234.2) (832.1) (496.0) (9,244.3)
Liability recognised
at 100% level 11.9 69.1 46.8 114.4 208.6 284.9 408.0 5 67.4 919.6 1,738.8 4,369.5
Liability recognised
in respect of prior
accident years at
100% level 137.3
Total net liability to external parties at 100% level
†
4,506.8
*The foreign exchange adjustment arises from the retranslation of the estimates at each date using the exchange rate ruling at 31 December 2020.
†
Excluding the unexpired risk reserve of $31.6 million net at 100%.
Reconciliation of 100% disclosures above to Group’s share – net of reinsurance
Accident year
2011
$m
2012
$m
2013
$m
2014
$m
2015
$m
2016
$m
2017
$m
2018
$m
2019
$m
2020
$m
Total
$m
Current estimate of
cumulative claims 1,19 0.0 902.6 811.5 836.7 1,088.8 1,331.0 1,6 65.1 1,801.6 1,751.7 2,234.8 13,613.8
Less: attributable
to external Names (159.4) (93.2) (80.2) (81.0) (112.5) (125.7) (155.4) (168.3) (183.3) (240.7) (1,399.7)
Group’s share of
current ultimate
claims estimate 1,030.6 809.4 731.3 755.7 976.3 1,205.3 1,509.7 1,633.3 1,568.4 1,994.1 12, 214.1
Cumulative
payments to date (1,178.1) (833.5) (764.7) (722.3) (880.2) (1,04 6.1) (1, 257.1) (1,234.2) (832.1) (496.0) (9,244.3)
Less: attributable
to external Names 152.7 86.1 74.9 73.8 92.3 101.3 115.9 125.3 96.3 61.0 979.6
Group’s share of
cumulative payments (1,025.4) ( 747.4) (689.8) (648.5) ( 787. 9 ) (944.8) (1,141.2) (1,108.9) (735.8) (435.0) (8,264.7)
Liability for 2011
to 2020 accident
years recognised
on Group’s
balance sheet 5.2 62.0 41.5 107.2 188.4 260.5 368.5 524.4 832.6 1,559.1 3,949.4
Liability for accident
years before
2011 recognised
on Group’s
balance sheet 106.1
Total Group liability to external parties included in balance sheet – net*
†
4,055.5
*This represents the claims element of the Group’s insurance liabilities.
†
Excluding the unexpired risk reserve of $22.9 million.
173Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Notes to the
consolidated nancial
statements
23 Insurance liabilities and reinsurance assets continued
23.2 Movements in insurance claims liabilities and reinsurance claims assets
A reconciliation of the insurance claims liabilities is as follows:
2020 2019
Year ended 31 December
Gross
$m
Reinsurance
$m
Net
$m
Gross
$m
Reinsurance
$m
Net
$m
Total at beginning of year 6,276.0 (2,921.0) 3,355.0 4,992.2 (2,0 47.1) 2,945.1
Claims and claim adjustment expenses for the year 2,966.5 (1,043.8) 1,922.7 3,206.7 (1,630.6) 1,576.1
Cash (paid)/received for claims settled in the year (2,085.0) 768.8 (1,316.2) (1,940.6) 761.9 (1,178.7 )
Foreign exchange and other adjustments 133.9 (17.0) 116.9 17.7 (5.2) 12.5
Total at end of year 7,291.4 (3,213.0) 4,078.4 6,276.0 (2,921.0) 3,355.0
Claims reported and claim adjustment expenses 2,688.0 (976.7) 1,711.3 2,259.0 (814.6) 1,444.4
Claims incurred but not reported 4,571.9 (2,227.7) 2,344.2 4,017.0 (2,106.4) 1,910.6
Unexpired risk reserve 31.5 (8.6) 22.9 – – –
Total at end of year 7,291.4 (3,213.0) 4,078.4 6,276.0 (2,921.0) 3,355.0
The insurance claims expense reported in the consolidated income statement is comprised as follows:
2020 2019
Year ended 31 December
Gross
$m
Reinsurance
$m
Net
$m
Gross
$m
Reinsurance
$m
Net
$m
Current year claims and claim adjustment expenses 2,422.0 (490.2) 1,931.8 3,584.6 (1,982.6) 1,602.0
Over-provision in respect of prior year claims and claim
adjustment expenses 513.0 (545.0) (32.0) ( 377.9) 352.0 (25.9)
Unexpired risk reserve 31.5 (8.6) 22.9 – – –
Total at end of year 2,966.5 (1,043.8) 1,922.7 3,206.7 (1,630.6) 1,576.1
A reconciliation of the unearned premium reserves is as follows:
2020 2019
Gross
$m
Reinsurance
$m
Net
$m
Gross
$m
Reinsurance
$m
Net
$m
Balance deferred at 1 January 1,818.5 (465.9) 1,352.6 1,709.3 (409.5) 1,299.8
Premiums written 4,033.1 (1,282.7) 2,750.4 4,030.7 (1,351.9) 2,678.8
Premiums earned through the income statement (4,071.2) 1,319.0 (2,752.2) (3,931.9) 1,296.3 (2,635.6)
Foreign exchange and other adjustments 41.6 (2.0) 39.6 10.4 (0.8) 9.6
Balance deferred at 31 December 1,822.0 (431.6) 1,390.4 1,818.5 (465.9) 1,352.6
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 premium written to net premium earned is as follows:
2020
$m
2019
$m
Gross premium written 4,033.1 4,030.7
Outward reinsurance premium (1,282.7) (1,351.9)
Net premium written 2,750.4 2,678.8
Change in gross unearned premium reserves 38.1 (98.8)
Change in reinsurers’ share of unearned premium reserves (36.3) 55.6
Change in net unearned premium reserves 1.8 (43.2)
Net premiums earned 2,752.2 2,635.6
174 Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Notes to the
consolidated nancial
statements
23 Insurance liabilities and reinsurance assets
23.2 Movements in insurance claims liabilities and reinsurance claims assets continued
In response to the Covid-19 pandemic, the Group reviewed and assessed the potential implications for each class of business
that the Group underwrites, across all its platforms, with involvement from underwriting, reserving, claims and nance teams.
The output of this assessment formed the basis of reserving.
The Group has material exposure to losses arising out of the Covid-19 pandemic and currently reserves $475 million net of
reinsurance for these claims (Hiscox Retail: $398 million, Hiscox London Market: $13 million, Hiscox Re & ILS: $64 million on
Group’s share basis). The Covid-19 pandemic is an unprecedented event for the insurance industry and the effects of it as a
loss event to the insurance and reinsurance markets remain both ongoing and uncertain. The ultimate amounts of these claims
are subject to a higher than normal level of uncertainty in the best estimate at this stage of development. Consequentially, in
measuring the liabilities, the Group has included an allowance for risk and uncertainties that is above the best estimate to reect
the early stage in the claim development process.
In determining the Covid-19-related 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.
Lloyd’s Part VII transfer
On 30December2020, the members and former members of the Syndicate, as comprised for each of the relevant years of
account between 1993 and April 2019, transferred all relevant policies (and related liabilities) underwritten by them for those
years of account to Lloyd’s Insurance Company S.A. (‘Lloyd’s Brussels’), in accordance with Part VII of the Financial Services
and Markets Act 2000. On the same date, the members of the Syndicate entered into a 100% quota share reinsurance
agreement whereby Lloyd’s Brussels reinsured all risks on the same policies back to the relevant open years of account of the
Syndicate, which wrote the transferring policies and/or inherited liabilities on transferring policies through reinsurance to close
of earlier years of account.
Following the sanction of the scheme by the High Court on 25November2020, the scheme took effect on 30December2020
and the members and former members of the Syndicate transferred the impacted EEA policies and related liabilities to Lloyd’s
Brussels, together with cash of $154.8million. On the same date, under the reinsurance agreement, Lloyd’s Brussels reinsured the
same risks back, together with an equal amount of cash of $154.8million and non-cash assets relating to the transferred liabilities.
The combined effect of the two transactions had no economic impact for the Syndicate, and accordingly there is no impact on the
Syndicate’s income statement and no net impact on the balance sheet.
No adjustment has been made in the segmental note for transactions that occurred in respect of the transferred business up to
the date of the transfer, which is consistent with the income statement presentation. Outstanding debtor and creditor balances
in respect of the transferred business that were previously classied as arising out of direct reinsurance operations have been
reclassied as arising out of reinsurance operations.
Current year underwriting results for the transferred policies have been reported in the same classes of business as in prior
years, as the effective date of the transfer was 30December2020, and in line with Society of Lloyd’s guidance no movements
were processed on these policies on 31December2020. In future years, results relating to these risks will be reported under
the inwards reinsurance class of business, reecting the new contractual arrangement with Lloyd’s Brussels.
175Hiscox Ltd Report and Accounts 2020
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A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Notes to the
consolidated nancial
statements
24 Trade and other payables
Note
2020
$m
2019
$m
Creditors arising out of direct insurance operations 101.0 139.4
Creditors arising out of reinsurance operations 836.0 823.1
937.0 962.5
Share of Syndicates’ other creditors’ balances 1.8 2.9
Social security and other taxes payable 51.7 39.7
Lease liabilities 59.7 71.4
Other creditors 30.1 74.1
143.3 188.1
Reinsurers’ share of deferred acquisition costs 15 106.9 124.7
Accruals and deferred income 148.4 145.0
Total 1,335.6 1,420.3
Included within accruals and deferred income is $4.9million (2019:$6.4million) of deferred gain on retroactive reinsurance contracts.
The amounts expected to be settled before and after one year are estimated as follows:
2020
$m
2019
$m
Within one year 1,239.2 1, 317.1
After one year 96.4 103.2
1,335.6 1,420.3
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 ofces 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:
2020
$m
2019
$m
Not later than one year 16.5 15.9
Later than one year and not later than ve years 38.9 46.5
Later than ve years 13.6 18.0
Total undiscounted lease liabilities at 31 December 69.0 80.4
The cost relating to variable lease payments that do not depend on an index or a rate amounted to $nil in the year ended
31December2020 (2019: $nil).
There were no leases with residual values guarantees (2019: none). The leases not yet commenced to which the Group is
committed amounted to $55.2 million (2019: $55.3million).
Payments associated with short-term leases amounting to $1.2million (2019:$2.7million) and leases of low-value assets
amounting to $nil (2019: $0.1million) are recognised on a straight-line basis as an expense in prot or loss.
176 Hiscox Ltd Report and Accounts 2020
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A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Notes to the
consolidated nancial
statements
25 Tax expense
The Company and its subsidiaries are subject to enacted tax laws in the jurisdictions in which they are incorporated and
domiciled. The principal subsidiaries of the Company and the country in which they are incorporated are listed in note 32.
The amounts charged in the consolidated income statement comprise the following:
2020
$m
2019
$m
Current tax
Expense for the year 11.5 36.0
Adjustments in respect of prior years 1.7 ( 7.0)
Total current tax expense 13.2 29.0
Deferred tax
Credit for the year (12.3) (28.7)
Adjustments in respect of prior years 26.4 3.8
Effect of rate change (2.1) 0.1
Total deferred tax expense/(credit) 12.0 (24.8)
Total tax charged to the income statement 25.2 4.2
The standard rate of corporation tax in Bermuda is 0% whereas the effective rate of tax for the Group is -9% (2019: 8%).
A reconciliation of the difference is provided below:
2020
$m
2019
$m
(Loss)/prot before tax (268.5) 5 3.1
Tax calculated at the standard corporation tax rate applicable in Bermuda: 0% (2019: 0%)
Effects of Group entities subject to overseas tax at different rates (20.6) 7. 9
Impact of overseas tax rates on:
Effect of rate change (2.1) 0.6
Expenses not deductible for tax purposes 2.7 1.2
Tax losses for which no deferred tax asset is recognised 8.6 1.6
Other 8.7 0.9
Adjustment for share-based payments (0.2) 0.4
Non-taxable income – (5.2)
Prior year tax adjustments 28.1 (3.2)
Tax charge for the year 25.2 4.2
Included within the current tax, a provision is recognised for those matters for which the tax determination is uncertain but it is
considered probable that there will be a future outow 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 lings 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 certain of these lings, 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.
177Hiscox Ltd Report and Accounts 2020
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Remuneration
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Shareholder information
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Notes to the
consolidated nancial
statements
26 Deferred tax
Net deferred tax assets
2020
$m
2019
$m
Trading losses in overseas entities 31.8 51.5
Deferred tax assets 140.6 76.1
Deferred tax liabilities (101.7) (50.7)
Total deferred tax asset 70.7 76.9
Net deferred tax liabilities
Deferred tax assets (2.0) –
Deferred tax liabilities 4.7 0.4
Total net deferred tax liability 2.7 0.4
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
2019
$m
Reallocation
$m
Income
statement
(charge)
/credit
$m
Recognised
in other
comprehensive
income/equity
$m
Foreign
exchange
$m
2020
$m
Tangible assets 0.9 – (2.0) – – (1.1)
UK capital losses – – – – – –
Trade and other payables 4.0 – (2.3) – – 1.7
Intangible assets – Syndicate capacity 1.5 – – – – 1.5
Retirement benet obligations 8.8 – (1.5) 8.9 0.3 16.5
Open years of account 40.4 – 37.6 – 2.2 80.2
Unearned premium 8.3 – 1.4 – – 9.7
Loss reserve discounting 5.7 – 1.2 – – 6.9
Other items 6.5 0.3 (4.5) (6.8) – (4.5)
Total deferred tax assets 76.1 0.3 29.9 2.1 2.5 110.9
Financial assets (1.2) – 0.3 – – (0.9)
Insurance contracts – equalisation provision (10.3) (2.1) 10.4 – (0.2) (2.2)
Reinsurance premiums (24.3) – (22.2) – (1.2) (47.7 )
Deferred acquisition costs (14.1) 0.2 (5.1) – – (19.0)
Other items (0.8) – (1.1) – – (1.9)
Total deferred tax liabilities (50.7) (1.9) (17.7) – (1.4) (71.7)
Net total deferred tax assets/(liabilities) 25.4 (1.6) 12.2 2.1 1.1 39.2
Trading losses in overseas entities 51.5 – (20.2) – 0.5 31.8
Net total deferred tax assets/(liabilities) 25.4 (1.6) 12.2 2.1 0.8 38.9
Net deferred tax position asset/(liability) 76.9 (1.6) (8.0) 2.1 1.3 70.7
Intangible assets – – (2.0) – – (2.0)
Technical reserves – 1.9 (2.8) – 0.1 (0.8)
Other (0.4) (0.3) 0.8 – – 0.1
Net total deferred tax position (liabilities)/assets (0.4) 1.6 (4.0) – 0.1 (2.7)
Net Group deferred tax asset/(liability) 76.5 – (12.0) 2.1 1.4 68.0
178 Hiscox Ltd Report and Accounts 2020
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Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Notes to the
consolidated nancial
statements
26 Deferred tax
Net Group deferred tax assets/(liabilities) analysed by balance sheet headings continued
Movements in deferred and current tax relating to tax deductions arising on employee share options are recognised in the
statement of changes in equity to the extent that the movement exceeds the corresponding charge to the income statement.
Movements in deferred tax relating to the employee retirement benet 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 recognised outside the income statement is $3.5million of income (2019:income of $3.6million), comprising
$2.1million deferred tax income and $1.4million current tax income (2019:$0.5million deferred tax expense and $4.1million
current tax income).
Deferred tax assets of $31.8million (2019:$51.5million), relating to losses arising in overseas entities, which depend on
the availability of future taxable prots, have been recognised. Business projections indicate it is probable that sufcient
future taxable income will be available against which to offset these recognised deferred tax assets within ve years.
$20.6million(2019:$12.3million) of the tax losses to which these assets relate will expire within ten years; a further $11.2million
(2019:$39.2million) will expire after ten years or will be available indenitely. The Group has not provided for deferred tax assets
totalling $44.0million (2019:$18.5million) in relation to losses in overseas companies of $224.7million (2019:$102.9million).
The deterioration in the economic environment together with signicant Covid-19-related claims in 2020 has affected the results
of the Group and its subsidiaries for the period, and changed assumptions around the timing of when carried forward losses
could be utilised. Therefore, there is an adjustment to derecognise $20 million of carried forward losses. Net deferred tax
assets of $35.4 million relating to UK entities, which depend on the availability of future taxable prots, have been recognised.
Business projections indicate it is probable that sufcient future taxable income will be available against which to offset these
recognised deferred tax assets within six years. In accordance with IAS 12, all deferred tax assets and liabilities are classied
as non-current. The amount of deferred tax assets expected to be recovered after more than 12 months is $68.0million
(2019 (restated):$76.5million). Following a review, the 2019 comparative has been corrected on the grounds that all of the
recognised deferred tax asset is non-current and expected to reverse after 12 months.
Factors affecting tax charges in future years
Budgets in previous years announced changes to the main rate of UK corporation tax. The current rate of 19% was enacted
on 26 October 2015 and applied from 1 April 2017.
A reduction in the UK corporation tax rate from 19% to 17% (effective from 1 April 2020) was substantively enacted on
6 September 2016, and the UK deferred tax asset as at 31st December 2019 was calculated based on this rate. In the
11 March 2020 Budget it was announced that the UK tax rate will remain at the current 19% and not reduce to 17% from
April 2020. This was substantively enacted 17 March 2020. 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 $2.5 million.
The impact of these changes in future periods will be dependent on the level of taxable prots in those periods.
27 Employee retirement benet obligations
The Company’s subsidiary Hiscox plc operates a dened benet pension scheme based on nal pensionable salary. The
scheme closed to future accrual with effect from 31December2006 and active members were offered membership of adened
contribution scheme from 1January2007. The funds of the dened benet scheme are controlled by the trustee and are held
separately from those of the Group. 61% of any scheme surplus or decit is recharged to Syndicate 33. The full pension obligation
of the Hiscox dened benet pension scheme is recorded and the recovery from the third-party Names for their share of the
Syndicate 33 recharge is shown as aseparate asset.
The gross amount recognised in the Group balance sheet in respect of the dened benet scheme is determined as follows:
2020
$m
2019
$m
Present value of scheme obligations 417.9 366.7
Fair value of scheme assets (344.4) (311.6)
Net amount recognised as adened benet obligation 73.5 55.1
As the present value of scheme obligations exceeds the fair value of the scheme assets, the scheme reports a decit.
The dened benet obligation is calculated annually by independent actuaries using the projected unit credit actuarial cost
method. A formal full actuarial valuation is performed on atriennial basis, most recently at 31December2017, and updated
at each intervening balance sheet date by the actuaries. The present value of the dened benet obligation is determined by
discounting the estimated future cash ows using interest rates of AA rated corporate bonds that have terms to maturity that
approximate to the terms of the related pension liability.
179Hiscox Ltd Report and Accounts 2020
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Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Notes to the
consolidated nancial
statements
27 Employee retirement benet obligations continued
The scheme assets are invested are as follows:
At 31 December
2020
$m
2019
$m
Investment assets
Pooled investment vehicles 222.7 219.1
Equities 75.0 70.9
Bonds 12.1 7.4
Derivatives 0.2 0.1
Cash 34.4 14.1
344.4 311.6
The amounts recognised in total comprehensive income are as follows:
Note
2020
$m
2019
$m
Past service cost –
–
Interest cost on dened benet obligation 7.6 8.6
Interest income on plan assets (6.5) ( 7.6)
Net interest cost 1.1 1.0
Administrative expenses and taxes – –
Total expense recognised in operational expenses in the income statement 9 1.1 1.0
Remeasurements
Effect of changes in actuarial assumptions 52.1 52.6
Return on plan assets (excluding interest income) (6.5) (32.8)
Remeasurement of third-party Names share of dened benet obligation ( 7.6 ) (3.3)
Total remeasurement included in other comprehensive income 38.0 16.5
Total dened benet charge recognised in comprehensive income 39.1 17. 5
In October 2018, the High Court in the UK issued a ruling to address inequalities in the calculation of guaranteed minimum
pensions (GMPs) for members of pension schemes. This ruling requires pension funds to increase the benets of some members
of the pension scheme.
The Group has completed an estimate of the impact of the ruling on the scheme using one of the methods identied by the
High Court (C2) for equalising GMPs and has recognised a charge of £15,000 ($20,000) during the year (2019: $nil).
The movement in liability recognised in the Group’s balance sheet is as follows:
2020
$m
2019
$m
Group dened benet liabilities at beginning of year 55.1 35.8
Third-party Names’ share of liability (10.5) (6.6)
Net dened benet liability at beginning of year 44.6 29.2
Dened benet cost included in net income 1.1 1.0
Contribution by employer (30.4) (3.6)
Credit from third-party Names (0.2) (0.2)
Foreign exchange movements 1.6 1.7
Total remeasurement included in other comprehensive income 38.0 16.5
Net dened benet liability at end of year 54.7 44.6
Third-party Names’ share of liability 18.8 10.5
Group dened benet liability at end of year 73.5 55.1
180 Hiscox Ltd Report and Accounts 2020
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A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Notes to the
consolidated nancial
statements
27 Employee retirement benet obligations continued
A reconciliation of the fair value of scheme assets is as follows:
2020
$m
2019
$m
Opening fair value of scheme assets 311.6 266.2
Interest income 6.5 7.6
Cash ows
Contribution by the employer 30.4 3.6
Benet payments (21.4) (10.4)
Remeasurements
Return on plan assets (excluding interest income) 6.5 32.8
Foreign exchange movements 10.8 11.8
Closing fair value of scheme assets 344.4 311.6
A reconciliation of the present value of obligations of the scheme is as follows:
2020
$m
2019
$m
Opening present value of scheme obligations 366.7 302.0
Past service cost – –
Interest expense 7.6 8.6
Cash ows
Benet payments (21.4) (10.4)
Remeasurements
Changes in actuarial assumptions 52.1 52.6
Foreign exchange movements 12.9 13.9
Closing present value of scheme obligations 417.9 366.7
Assumptions regarding future mortality experience are set based on the S2PA light tables. Reductions in future mortality rates are
allowed for by using the CMI 2017 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:
2020 2019
Male 28.0 27. 9
Female 29.1 29.0
The average life expectancy in years of a pensioner retiring at 60, 15 years after the balance sheet date, is as follows:
2020 2019
Male 29.1 29.0
Female 30.2 30.2
The weighted average duration of the dened benet obligation at 31 December 2020 was 20.1 years (2019: 20.5 years).
181Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Notes to the
consolidated nancial
statements
27 Employee retirement benet obligations continued
Other principal actuarial assumptions are as follows:
2020
%
2019
%
Discount rate 1.40 2.10
Ination assumption (RPI) 2.90 2.90
Ination assumption (CPI) 2.50 1.90
Pension increases 2.75 2.90
The scheme operates under UK trust law and the Trust is aseparate legal entity from the Group. The scheme is governed by
aboard 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 aseparate actuarial valuation for funding
purposes for which the assumptions may differ from the assumptions above. Funding requirements are formally set out in the
statement of funding principles, schedule of contributions and recovery plan agreed between the trustees and the Group.
The triennial valuation carried out as at 31December2017 resulted in a decit position of £26.5million ($35.8million) on a funding
basis. The Group and the scheme’s trustees have agreed a recovery plan to reduce the decit and to eliminate the decit by 2024.
A funding contribution of £22.8 million ($30.4 million) was paid during 2020, including an advance payment for contributions due
in 2021. No further contributions are expected until the statutory funding valuation as at 31 December 2020 has completed and a
new schedule of contributions is agreed between the Company and the Trustees.
While management believes that the actuarial assumptions are appropriate, any signicant 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 £14.1million ($19.3million) at 31December2020 (2019:£11.8million ($15.6million)), and
would increase the recorded net decit on the balance sheet by the same amounts.
The most sensitive and judgemental nancial assumptions are the discount rate and ination. 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 increase.
The Group has estimated the sensitivity of the net obligation recognised in the consolidated balance sheet to isolated changes
in these assumptions at 31December2020 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
$m
Effect of a change in discount rate
Use of discount rate of 1.65% 73.5 53.5 20.0
Use of discount rate of 1.15% 73.5 95.0 (21.5)
Effect of a change in ination
Use of RPI ination assumption of 3.15% 73.5 80.1 (6.6)
Use of RPI ination assumption of 2.65% 73.5 67. 3 6.2
182 Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Notes to the
consolidated nancial
statements
28 Earnings per share
Basic (loss)/earnings per share is calculated by dividing the prot attributable to equity holders of the Company by the weighted
average number of ordinary shares in issue during the year, excluding ordinary shares held by the Group and held in treasury as
own shares.
Basic 2020 2019
(Loss)/prot for the year attributable to the owners of the Company ($m) (293.7) 48.9
Weighted average number of ordinary shares (thousands) 320,562 284,015
Basic (loss)/earnings per share (cents per share) (91.6)¢ 17. 2¢
Basic (loss)/earnings per share (pence per share) (71.5)p 13.5p
Diluted
Diluted (loss)/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,
acalculation 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.
2020 2019
(Loss)/prot for the year attributable to the owners of the Company ($m) (293.7) 48.9
Weighted average number of ordinary shares in issue (thousands) 320,562 284,015
Adjustments for share options (thousands) 3,498 4,361
Weighted average number of ordinary shares for diluted (loss)/earnings per share (thousands) 324,060 288,376
Diluted (loss)/earnings per share (cents per share) (90.6)¢ 16.9¢
Diluted (loss)/earnings per share (pence per share) (70.7)p 13.3p
Diluted (loss)/earnings per share has been calculated after taking account of 3,431,623 (2019:4,067,881) Performance Share Plan
awards and 66,010 (2019:293,028) options under SAYE schemes.
183Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Notes to the
consolidated nancial
statements
29 Dividends paid to owners of the Company
2020
$m
2019
$m
Final dividend for the year ended:
31 December 2018 of 28.6¢ (net) per share – 81.4
Interim dividend for the year ended:
31 December 2019 of 13.75¢ (net) per share – 39.5
– 120.9
As announced on 8April2020, in order to help the Group serve the needs of businesses through the extraordinary challenges
presented by Covid-19, and with the support of the regulators, the Hiscox Ltd Board took the decision that the resolution to
approve the 2019 nal dividend of 29.6 cents per share, which was scheduled for payment on 10June2020, would not be put
to shareholders at the Annual General Meeting (AGM).
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.
The Board also agreed that, for 2020, the Group would not propose an interim dividend payment, or conduct any further share
buybacks. In addition, the Board has not declared a nal dividend for the year ended 31December2020 (2019:$75.2million
and 296,044 shares for the scrip dividend). The interim dividends for 2019 were either paid in cash or issued as a scrip dividend
at the option of the shareholder (2020: $nil;2019: $36.4million and 157,487 shares for the scrip dividend).
2019 interim dividends were declared in US Dollars, aligning shareholder returns with the primary currency in which the Group
generates cash ow. The foreign exchange rates for dividends declared in US Dollars have been calculated based on the average
exchange rate in the ve business days prior to the scrip dividend price being determined. Historically, dividends have been paid
in Sterling unless shareholders elect to be paid in US Dollars.
184 Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Notes to the
consolidated nancial
statements
30 Contingencies and guarantees
The Group’s parent company and subsidiaries may become involved in legal proceedings, claims and litigation in the normal
course of business. The Group reviews and, in the opinion of the Directors, maintains sufcient 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 31December2020, HDCM held $316.1million of investments (2019:$433.4million),
$8.8million of cash (2019:$40.7million) and a $241.0 million LOC (2019:$25.0million) in favour of Lloyd’s of London under
this arrangement. At 31December2020, Hiscox Bermuda held $884.6million of investments (2019:$622.4million),
$25.9million of cash (2019:$38.6million) and a $25.0million LOC (2019:$25.0million) in favour of Lloyd’s of London
under this arrangement.
(b) During the year, HDCM entered into a $65million FAL agreement under which the lending bank provides assets on HDCM’s
behalf under a security and trust deed charged to Lloyd’s of London as part of the Company’s Fund’s at Lloyd’s provision.
At 31December2020 the full $65million was utilised.
(c) Hiscox plc continued with its LOC and revolving credit facility with Lloyds Banking Group, as agent for a syndicate of banks,
which may be drawn in cash up to £450million under a revolving credit facility or LOC up to $266million (2019:$800 million
aggregate facility). 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 31December2020 $266.0million (2019:$50.0million) was utilised by way of LOC to support the
Funds at Lloyd’s requirement and $193.4million cash drawings were outstanding (2019:$nil).
(d) Hiscox Insurance Company Limited has arranged a LOC of £50,000 (2019:£50,000) with NatWest Bank plc to support its
consortium activities with Lloyd’s; the arrangement is collateralised with cash of £50,000 (2019:£50,000).
(e) The Council of Lloyd’s has the discretion to call a contribution of up to 3% of capacity if required from the managed syndicates.
(f) As Hiscox Bermuda is not an admitted insurer or reinsurer in the USA, the terms of certain US insurance and reinsurance
contracts require Hiscox Bermuda to provide LOCs or other terms of collateral to clients. Hiscox Bermuda has in place
a LOC reimbursement and pledge agreement with Citibank for the provision of a LOC facility in favour of USA ceding
companies and other jurisdictions, and also LOC facility agreements with National Australia Bank and Commerzbank AG.
The agreements combined are a three-year secured facility that allowed Hiscox Bermuda to request the issuance of up
to $470.0million in LOCs (2019:$470.0million).
LOCs issued under these facilities are collateralised by cash, US government and corporate securities of Hiscox
Bermuda. LOCs under these facilities totalling $140.1million were issued with an effective date of 31December2020
(2019:$150.8million on a $470million facility) and these were collateralised by US government and corporate securities
with a fair value of $169.5million (2019:$172.9million). In addition, Hiscox Bermuda maintained assets in trust accounts
to collateralise obligations under various reinsurance agreements. At 31December2020, total cash and marketable
securities with a carrying value of approximately $18.4million (2019:$9.3million) was held in external trusts. Cash
and marketable securities with an approximate market value of $598.7million (2019:$476.3million) were held in trust
in respect of internal quota share arrangements.
(g) Hiscox SA has arranged bank guarantees with respect to their various ofce deposits for a total of €433,336 (2019:€412,000).
These guarantees are held with ING Bank (Belgium) €23,000 (2019:€23,000), ABN Amro (Holland) €45,000 (2019:€45,000),
HypoVereinsbank – UniCredit (Germany) €156,336 (2019:€135,000), ING Bank (Luxembourg) $42,000 (2019:€42,000) and
HSBC (Spain) €167,000 (2019:€167,000). As a consequence of the cross-border merger with Hiscox Europe Underwriting
Limited effective 1January2019, Hiscox SA have the obligations under guarantees that were previously held by Hiscox
Europe Underwriting Limited during 2018.
(h) See note 25 for a tax-related contingent liability.
185Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Notes to the
consolidated nancial
statements
31 Capital commitments and income from subleasing
Capital commitments
The Group’s capital expenditure contracted for at the balance sheet date but not yet incurred for property, plant, equipment
and software development was $9.9million (2019: $11.9 million). During the year, the Group has reviewed the reporting on
contracted commitments and as a result identied contracts that were previously omitted. Comparative gures have been
represented to reect this. In addition, please refer to note 27 related to the Groups’ funding contributions commitment to the
dened benet scheme.
Income from subleasing
Hiscox acts as a lessor and sublets excess capacity of its ofce 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:
2020
$m
2019
$m
No later than one year 0.4 0.7
Later than one year and no later than ve years – 0.4
0.4 1.1
32 Principal subsidiary companies of Hiscox Ltd at 31 December 2020
Company Nature of business Country
Hiscox plc* Holding company Great Britain
Hiscox Insurance Company Limited General insurance Great Britain
Hiscox Insurance Company (Guernsey) Limited* General insurance Guernsey
Hiscox Holdings Inc. Holding company USA (Delaware)
ALTOHA, Inc. Insurance holding company USA (Delaware)
Hiscox Insurance Company Inc. General insurance USA (Illinois)
Hiscox Inc. Insurance intermediary USA (Delaware)
Hiscox Insurance Company (Bermuda) Limited* General insurance and reinsurance Bermuda
Hiscox Dedicated Corporate Member Limited Lloyd’s corporate Name Great Britain
Hiscox Holdings Limited** Insurance holding company Great Britain
Hiscox Syndicates Limited Lloyd’s managing agent Great Britain
Hiscox ASM Ltd. Insurance intermediary Great Britain
Hiscox Underwriting Group Services Limited Service company Great Britain
Hiscox Underwriting Ltd Underwriting agent Great Britain
Hiscox Société Anonyme* General insurance Luxembourg
Hiscox Assure SAS Insurance intermediary France
Direct Asia Insurance (Holdings) Pte Ltd Holding company Singapore
Direct Asia Insurance (Singapore) Pte Limited General insurance Singapore
*Held directly.
**Hiscox Holdings Limited held 38,030 shares in Hiscox Ltd at 31 December 2020 (2019: 38,030).
All principal subsidiaries are wholly owned. The proportion of voting rights of subsidiaries held is the same as the proportion of
equity shares held.
186 Hiscox Ltd Report and Accounts 2020
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Notes to the
consolidated nancial
statements
33 Related-party transactions
Details of the remuneration of the Group’s key personnel, presented in Sterling, are shown in the annual report on remuneration
2020 on pages 80 to 87. Anumber 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 reect the 27.4% interest (2019: 27.4%) that the Group does
not own, and are as follows.
Transactions in
the income statement
forthe year ended
Balances
outstanding (payable)
at
31 December
2020
$m
31 December
2019
$m
31 December
2020
$m
31 December
2019
$m
Hiscox Syndicates Limited 5.1 3.3 1.2 0.5
Hiscox Group insurance carriers 15.6 (34.6) (114.8) (130.5)
Hiscox Group insurance intermediaries (1.5) 5.8 (14.4) (6.7)
Other Hiscox Group companies 32.8 31.1 22.6 0.4
52.0 5.6 (105.4) (136.3)
(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.
2020
$m
2019
$m
Gross premium income achieved through associates 12.1 13.7
Commission expense charged by associates 3.0 3.6
Amounts payable to associates at 31 December – –
Amounts receivable through associates at 31 December 55.4 51.5
Details of the Group’s associates are given in note 14.
(c) Internal reinsurance arrangements
During the current and prior year, there were anumber 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
Changes to segmental reporting
Hiscox Special Risks, which is a business reported under the Hiscox Retail segment, ceased to exist from 1 January 2021.
To better reect a distribution-led geographic view, kidnap and ransom businesses locally written in Europe and the USA is
now managed by the respective Hiscox retail businesses and continues to be reported under the Hiscox Retail segment.
Other Special Risks businesses are managed by the London Market business unit and reported under that operating segment.
The segmental reporting will be represented accordingly in 2021. There is no impact to the Group’s income statement, balance
sheet or cash ow statements.
187Hiscox Ltd Report and Accounts 2020
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Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
Additional performance measures (APMs)
The Group uses, throughout its nancial publications,
additional performance measures (APMs) in addition to
the gures that are prepared in accordance with International
Financial Reporting Standards (IFRS). The Group believes
that these measures provide useful information to enhance
the understanding of its nancial performance. These APMs
are: premium growth in local currency, combined claims and
expense ratios, return on equity, net asset value per share and
net tangible asset value per share and prior-year developments.
These are common measures used across the industry, and
allow the reader of our Annual Report and Accounts to compare
across peer companies. The APMs should be viewed as
complementary to, rather than a substitute for, the gures
prepared in accordance with IFRS.
To align to the nancial information presented in operating
segment, note 4 to the consolidated nancial statements
and management information, the Directors decided to
stop disclosing premium growth in local currency as key
performance measure. The Group reports the premium
growth in US Dollars, the presentation currency of the
consolidated nancial statements.
A Combined claims and expense ratios
The combined claims and expense ratios are common
measures enabling comparability across the insurance
industry that measure the relevant underwriting protability
of the business by reference to its costs as a proportion
of its net earned premium. The Group calculates the
combined ratio as if the Group owned all of the business,
including the proportion of Syndicate 33 that the Group
does not own (Group controlled income). The Group
does this to enable comparability from period to period
as the business mix may change in a segment between
insurance carriers, and this enables the Group to measure
all of its underwriting businesses on an equal measure.
The calculation is discussed further in note 4, operating
segments. The combined ratio excluding foreign exchange
gains 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
protability of business segments, and underpins the
performance-related pay and pre-2018 shared-based
payment structures. The ROE is shown in note 6, along
with an explanation of the calculation.
A Net asset value (NAV) per share and net tangible asset
value per share
The Group uses NAV per share as one of its key
performance metrics, including using the movement of
NAV per share in the calculation of the options vesting of
awards granted under Performance Share Plans (PSP)
from 2018 onwards. This is a widely used key measure
for management and also for users of the nancial
statements to provide comparability across peers in the
market. Net tangible asset value comprises total equity
excluding intangible assets. NAV per share and net
tangible asset value per share are shown in note 5,
along with an explanation of the calculation.
A Prior-year developments
Prior-year developments are a measure of favourable or
adverse development that existed at the prior balance
sheet date. It enables the users of the nancial statements
to compare and contrast the Group’s performance relative
to peer companies. The Group maintains a prudent
approach to reserving, to help mitigate the uncertainty
within the reserve estimates. The prior-year development is
calculated as the positive or negative movement in ultimate
losses on prior accident years between the current and
prior-year balance sheet date, as shown in note 23.
Chapter 2 17
A closer look
Chapter 4 75
Remuneration
Chapter 5 107
Shareholder information
Chapter 1 3
A balanced business
Chapter 3 51
Governance
Chapter 6 113
Financial summary
188 Hiscox Ltd Report and Accounts 2020
Five-year summary
2020
$m
2019
(restated)*
$m
2018
$m
2017
$m
2016
$m
Results
Gross premiums written 4,033.1 4,030.7 3,778.3 3,286.0 3,257. 9
Net premiums written 2,750.4 2,678.8 2,581.5 2,403.0 2,424.5
Net premiums earned 2,752.2 2,635.6 2,573.6 2,416.2 2,271.3
(Loss)/prot before tax (268.5) 5 3.1 135.6 37. 8 480.0
(Loss)/prot for the year after tax (293.7) 48.9 117.9 22.7 4 47. 2
Assets employed
Intangible assets 298.9 278.0 204.6 186.0 153.4
Financial assets carried at fair value 6,116.8 5,539.0 5,029.7 5,139.6 4,702.1
Cash and cash equivalents 1,577.2 1,115.9 1,288.8 8 67.8 824.4
Insurance liabilities and reinsurance assets (5,468.8) (4,707.6) (4,244.9) (4,174.4) (3,778.7)
Other net assets (170.2) (35.6) (19.2) 298.2 316.2
Net assets 2,353.9 2,18 9.7 2,259.0 2, 317.2 2, 217. 4
Net asset value per share (¢) 689.0 768.2 798.6 817.1 792.5
Key statistics
Basic (loss)/earnings per share (¢) (91.6) 17. 2 41.6 8.1 159.0
Basic (loss)/earnings per share (p) (71.5) 13.5 31.2 9.3 119.8
Diluted (loss)/earnings per share (¢) (90.6) 16.9 40.8 11.6 157.3
Diluted (loss)/earnings per share (p) (70.7) 13.3 30.6 9.0 116.0
Combined ratio (%) 114.5 106.8 94.4 98.8 90.6
Return on equity (%) (11.8) 2.2 5.3 1.0 22.5
Dividends per share (¢) – 13.8 41.9 39.8 35.0
Dividends per share (p) – 11.1 32.8 29.0 27. 5
Share price – high
†
(p) 1,006.5 1,777.0 1,711.0 1,470.0 1,0 97. 0
Share price – low
†
(p) 991.4 1,213.0 1,332.0 9 97.5 900.5
†
Closing mid-market prices.
*2019 nal dividend was declared but subsequently canceled. See note 29 for further details.
The ve-year summary is unaudited.
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Disclaimer
This document contains
forward-looking statements
regarding plans, goals and
expectations relating to the
Group’s future nancial condition,
performance, results, strategy
or objectives, which by their very
nature involve risk and uncertainty.
Statements that are not historical
facts are based on Hiscox’s beliefs
and expectations. These include
but are not limited to statements
containing the words ‘may’,
‘will’, ‘should’, ‘continue’, ‘aims’,
‘estimates’, ‘projects’, ‘believes’,
‘intends’, ‘expects’, ‘plans’, ‘seeks’
and words of similar meaning.
These statements are based
on current plans, estimates and
projections as at the time they are
made and therefore undue reliance
should not be placed on them.
A number of factors could cause
Hiscox’s actual future nancial
condition, performance or other
key performance indicators
to differ materially from those
discussed in any forward-looking
statement. These factors include
but are not limited to future market
conditions; the policies and actions
of regulatory authorities; the impact
of competition, economic growth,
ination, and deation; the impact
and other uncertainties of future
acquisitions or combinations within
the insurance sector; the impact
of changes in capital, solvency
standards or accounting standards
or relevant regulatory frameworks,
and tax and other legislation and
regulations in the jurisdictions
in which Hiscox operates; and
the impact of legal actions and
disputes. These and other important
factors could result in changes to
assumptions used for determining
Hiscox results and other key
performance indicators.
Hiscox therefore expressly
disclaims any obligation to update
any forward-looking statements
contained in this document,
except as required pursuant to
the Bermuda Companies Act,
the UK Listing Rules, the UK
Disclosure Guidance and
Transparency Rules or other
applicable laws and regulations.
T +1 441 278 8300
E enquiries@hiscox.com
www.hiscoxgroup.com
21000 03/21