Revenue Increase: $170 million increase in revenue, with $150 million from the retail business. Undiscounted Combined Ratio: 93.6% for retail and 81.6% for big ticket. Retail Profits: Approximately $300 million. Record Profits: $685 million for the group. Return on Equity: 19.8%. Final Dividend Increase: 20% increase, leading to a full-year EPS increase of 15%. Special Return of Capital: $175 million through a share buyback. Insurance Contract Written Premium (ICWP): Increased by $169 million. Expense Ratio Improvement: Decreased by around 1 percentage point. Investment Return: $384 million. Net Loss from California Wildfires: Estimated at $170 million. Net Premium Growth in Re & ILS: Over 11% increase. Fee Income from ILS Strategies: Record $128 million. Retail ICWP Growth: 5.1% in constant currency to $2.5 billion. London Market ICWP Decline: 2% decline. Net ICWP Growth in Re & ILS: 11.1% increase. Investment Return Rate: 4.8%. Reserve Releases: $146 million or 3.7% of opening reserves. Net Asset Value (NAV) per Share Growth: 14% year-on-year. Estimated BSCR: 225%.

Warning! GuruFocus has detected 2 Warning Sign with HCXLF.

Release Date: February 27, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Hiscox Ltd (HCXLF) reported record profits of $685 million for the second consecutive year, with a strong return on equity of 19.8%. The company achieved broad-based growth, increasing revenues by approximately $170 million, primarily driven by its retail business. Hiscox Ltd (HCXLF) announced a 20% increase in its final dividend, reflecting a full-year EPS increase of 15%, and a special return of capital of $175 million through a share buyback. The retail segment showed strong growth, with the UK business growing at its fastest rate since 2018, and the European business delivering robust growth with new distribution partnerships. The Re & ILS segment delivered a combined ratio of 69% and attracted $460 million of new inflows into ILS strategies, contributing to record fee income of $128 million.

Negative Points

The US broker business contracted in 2024, although there is an expectation of returning to growth in 2025. The London market business saw a decline in ICWP by 2% due to proactive cycle management and exiting certain business lines like space. The California wildfires in Q1 2025 resulted in an estimated net loss of $170 million, impacting the Re & ILS segment significantly. The Bermuda corporate income tax implementation will increase the group's effective tax rate to between 15% and 20%, with uncertainty around the future benefit of a $155 million deferred tax asset. The group faced a challenging environment with over 200 large risk losses notified in 2024, an 8% increase year-on-year, highlighting the active loss year.

Story Continues

Q & A Highlights

Q: Can you provide more color on the confidence behind the 6% growth target for retail, especially with some segments accelerating into double digits? A: Hamayou Akbar Hussain, CEO: The 6% growth target is based on a gradual increase from 4% in 2023 to 5% in 2024, with expectations for continued momentum in 2025. This growth is driven by management actions such as brand reinvigoration, distribution capability enhancements, and efficiency improvements. The new business policy count doubled in 2024 compared to 2023, indicating strong underlying improvement.

Q: How do you view the impact of the California wildfires on your capital return decisions? A: Hamayou Akbar Hussain, CEO: The wildfires did not significantly impact our capital return decisions. Our balance sheet remains robust, and we continue to follow our capital framework, which prioritizes growth, balance sheet strength, and returning excess capital to shareholders.

Q: Can you elaborate on the sustainability of the $128 million fee income and its components? A: Paul Cooper, CFO: The $128 million fee income is entirely from Re & ILS, with a significant portion being volume-driven. We attracted $460 million of additional capital and grew our quota share outwards. While profit commissions have been substantial due to low combined ratios, the expectation for 2025 is that the profit commission element will be lower.

Q: What is your outlook for growth in the London market, especially given the current rate environment? A: Joanne Musselle, Chief Underwriting Officer: We see good opportunities to grow in the London market, particularly in areas like ESG syndicates and renewable construction projects. While we exercise discipline in areas like casualty where rates have softened, we believe the majority of our portfolio is priced to deliver attractive returns.

Q: How do you plan to use the excess capital, given the current BSCR level? A: Paul Cooper, CFO: We retain capital for growth and balance sheet strength, with any excess considered for shareholder returns. We maintain financial flexibility to capitalize on emerging opportunities, and our capital management framework ensures we are good custodians of shareholder capital.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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