Good morning. I'm Rob Childs, the Chairman of Hiscox, and I'm here to present our first half results. We've had a very strong underwriting result, and Joanne Musselle will be happy to tell you more about it later. This has been masked by our investment performance, and again, Paul Cooper will tell you something about that later. I'm very pleased to announce an increased dividend, which reflects our confidence in Aki and his strategy. We've also built out the executive team. It is now complete. Paul Cooper, the CFO, who's presenting today. We also have appointed Jon Dye as the Chief Executive of Hiscox UK, and Nicola Grant as the new head of HR. I'll now hand over to Aki to give you an overview of the business.
Thank you, Rob, and good morning, everyone. For my first six months as CEO, I'm pleased to report we have delivered good top-line growth and strong underwriting profits. Our group GWP increased just over 9%, and we increased our underwriting profits by an excellent 23%. Our balance sheet remains strong, and we are well-positioned to grow where we see opportunities and navigate what is a complex external environment. Now, this next slide will be familiar to you from our March update when I launched the strategy and vision for our business. Our diverse portfolio of businesses continues to create options and positions us well to generate high quality growth and earnings. In London Market and Re and ILS, we continue to pursue selective growth in the classes that are rate adequate and where we have a specialist edge.
As market conditions change, we're able to allocate our capital in real time between our businesses based on expected returns. In retail, our continued investment in people, brand, and technology is ensuring we capture a significant share of the very large and profitable opportunity ahead of us. At the core is what makes us stronger than the sum of our parts. Our distinct culture, our people and brand, our expert underwriting and capital strength, complemented by investment in technology. Now I'm going to take a few minutes to reflect on the performance of each of the divisions, beginning with retail. As you can see here, each of our businesses is growing. On an underlying basis, retail growth has accelerated to 8.5%. In the U.S., which represents our largest structural growth opportunity, we delivered underlying growth of just under 8%.
In broker distribution, the portfolio refocus work, which has been going on for the last 18 months, is now complete, and we're resetting the sales teams into growth mode, working with our broker partners in our core specialist areas. In the U.K., we've seen a notable performance improvement in the first half. Our commercial alliance business is the growth engine in the U.K. This is up 9% in constant currency, supported by rate tailwinds and excellent retention rates. Our European business continues its strong performance with premiums up 14% and all markets in the region are in growth mode. Now let's turn to our U.S. digital partnerships and direct business or DPD. The opportunity here is large and attractive. There are approximately 33 million small businesses in the U.S. The insurance penetration levels remain low, and the market is underserved and fragmented.
To be successful in this market requires underwriting discipline, a reliable source of capital to invest in technology, brand, and customer acquisition. We set this business up in 2012, and we've grown it to almost half a billion dollars of GWP annualized entirely organically. We now have an excellent platform for capturing the large and attractive opportunity ahead. We're continuing to invest in this opportunity. You'll remember we have been undertaking a multi-year technology transformation program, with 2022 being the year we switch over to the new tech. I'm pleased to report that in June we reached a significant milestone when our new direct-to-consumer online portals went live in all 50 states. This means all our direct customers, which make up 1/3 of the DPD customer base, are now live on the new platform.
In July, we started the migration of our existing partners, and we plan to have this materially complete by the end of this year. As we reported earlier, to maintain an excellent service to our customers and reduce the complexity of technology transition, we have temporarily switched off some new business opportunities and paused the onboarding of new partners. For these reasons, I now expect USDPD to grow at the midpoint of our stated 5%-15% retail growth range in 2022. This is slightly lower than our expectations when we last reported, mostly due to scheduling of partner migration activity. The majority of the impact will be in Q3, when most of the partner migration will take place, with a pickup in expected growth in Q4. I expect the USDPD growth to rebound to in excess of 15% in 2023.
The new technology is a key pillar of our strategy to capture the growth opportunity. Once fully live, the new platform will be able to support an improved growth trajectory. Although it is early days, we are already seeing some signs of operational improvements, including an over 50% reduction in the number of referrals to manual underwriting. The new digital shop front is already driving benefits as we're starting to see improved conversion and some triple bundles being purchased, including BOP, which is the business owner policy, combined with professional liability and cyber. I also want to take this opportunity to spotlight other parts of our retail business. This time I'm going to focus on Germany.
It is the largest market in Europe, and our business has grown rapidly in recent years to a GWP of around EUR 150 million annualized with a five-year CAGR of 16%. The business is made up of about EUR 100 million of commercial insurance provided to small businesses, and the rest is mostly personal lines, home, Fine Art and Classic Cars. About 40% of the commercial business is distributed digitally to brokers, partners, and direct consumers. This is growing fast with a five-year CAGR of 25%. The ingredients for success are similar to the playbook we have developed for other markets. It comprises excellent relationships in the market with our broker partners. A deep understanding of risks being faced by our customers. Investment in superb underwriting, technology, operations and brand building, while providing an omni-channel distribution capability.
Like in the US, we're investing in a new platform for Germany. This will include a core system and customer portals to deliver improved experience and reduce time to market for new products and onboarding of new partners. Now, moving on to London Market. Here our focus has been on selective growth and on building balanced portfolios. As you can see, we are growing those parts of the business where we see the most attractive risk-adjusted returns. At the same time, we're continuing to reduce our exposure to underpriced property, in particular the household binders. The property book is now profitable, but it still remains below our return thresholds. This focused approach continues to drive attractive and resilient underwriting results, with the business once again posting an excellent Combined Ratio. Finally, our reinsurance division. This business has had an excellent first half.
The strong relative performance of our ILS funds and good relationships with our investors has meant we have seen net inflows of over half a billion dollars by first of July this year. This is allowing us to step up to the opportunity in what is rapidly becoming a distressed property cat reinsurance market and enabling us to grow our participation on carefully selected cedants. The additional assets under management come with an increase in expected capital light fee income in the second half and into 2023. Now, as you've heard me say before, we are a people business. Ensuring we're able to attract, retain, and nurture high caliber talent is a cornerstone of our success. One of my priorities this year has been to refresh our employee proposition and ensure Hiscox remains a great place to work.
We're doing this through a number of initiatives, including a review of our benefits program. A key one I would like to highlight is HSX:26. As you know, ownership is one of our core values, and I personally believe it is one of the key features that differentiates the Hiscox culture from many others. I'm very proud that every permanent employee now owns a part of Hiscox through the HSX:26 share grant we launched in April. I believe this is an important element of driving the success of the business we're jointly building. Finally, before I hand over to Paul to provide detail on the financials, I'm pleased to report my leadership team lineup is now complete.
With the addition of Paul Cooper as our CFO, Jon Dye as our UK CEO, Nicola Grant as the Group's Chief HR Officer, and Stéphane Flaquet, who's been appointed to the newly created role of Chief Operating Officer. As you can see, the GEC now comprises a significant amount of senior industry experience gained in Hiscox, blended with new perspectives from our fantastic external hires. Overall, I'm pleased with the progress we've made in the first six months of the year. We've delivered an excellent underwriting result. We remain disciplined in our growth. We're innovating to meet changing customer needs and an evolving market, and you'll hear much more on this from Jo in a few minutes. We're pushing hard where we see attractive opportunities. I'm pleased with how our strategy is being executed.
Now you'll hear from Paul Cooper, the new kid on the block, who'll take you through the details of our financial performance, followed by Joanne Musselle, our Chief Underwriting Officer, who'll cover our underwriting result and the market.
Thanks, Aki, and good morning, everyone. It's a real privilege to present to you today as the new group CFO. I'm delighted that I'm rejoining Hiscox at this very exciting time. The business has a great culture, superb underwriting, a strong balance sheet, and a really substantial growth opportunity in the retail digital space. Let's turn to our results. Group gross written premiums increased by 11.4% in constant currency to $2.6 billion, driven by ILS inflows in our reinsurance division, strong growth in our retail commercial businesses in Europe and UK, and continued double-digit growth in USDPD. The group delivered a strong underwriting result of $123 million, up 23.4% year-on-year, and a Combined Ratio of 91.3%.
A 1.8 percentage point improvement on the prior period, despite incurring a $48 million net loss due to the conflict in Ukraine. This is testament to our disciplined underwriting and proof that the group's strategy of building balanced portfolios and sustainable returns is delivering. A big moving part in the period is the investment result loss of $214 million, which despite the conservative asset allocation and short duration of our book, reflects the volatility seen in the market so far this year. A significant amount of the investment loss is mark-to-market on our bond portfolio, which under our accounting policy, flows through to the P&L, which we consider to be noneconomic in nature. I will now take you through some more details of each of our three divisions, starting with Hiscox Retail.
Hiscox Retail gross written premiums grew 5.9% in constant currency to $1.24 billion, driven by strong growth in Europe of 14.3% in constant currency and an improved performance in the U.K., where commercial lines grew 9% in constant currency, supported by strong rate momentum and excellent retentions. As has become customary over the last 12 months, we look at the underlying momentum of the retail go forward business, adjusted for the effects of the strategic portfolio repositioning in the U.S. broker channel, which was completed in May. On this basis, the underlying retail business growth accelerated to 8.5% in constant currency, up from 6.4% in the prior period.
Hiscox Retail delivered a Combined Ratio of 95.5%, a 5.2 percentage point improvement on the prior period, showing good progress towards the 90%-95% range, the target we set ourselves back in 2019 to be delivered in 2023. Since then, we have exited portfolios of business which do not meet our profitability hurdles while growing in attractive areas, driven rate increases into the book, improved terms and conditions, standardized policy wordings, and implemented cost efficiency measures in claims processing. Moving to our London Market business.
London Market gross written premiums reduced by 3% to $592 million, mainly as a result of planned action to further cut underpriced natural catastrophe exposure in our property binder book, which has taken around 5 percentage points from the division's top line growth in the first half, with roughly another 1% lost due to Russian sanctions. Our focus on profitability means we grew selectively, mainly in casualty lines that benefited from significant cumulative rate increases over recent periods. In Hiscox London Market, our strategic focus continues to be on building balanced portfolios and attractive returns, which resulted in strong profitability in the period. Hiscox London Market delivered a Combined Ratio of 86.1%, a great result given it includes around 10 percentage points due to the conflict in Ukraine.
Excluding that, it is a 5.6 percentage points improvement on the prior period. Finally, Hiscox Re & ILS. Hiscox Re & ILS delivered a strong result in the first half, growing gross written premiums 37.1% to $823 million. This excellent momentum was created by net inflows of $561 million into our ILS funds, which as of July 1, 2022, has $1.9 billion of assets under management. We continue to build our reputation as a successful hybrid reinsurer, which uses our deep relationships in the market and underwriting ecosystem to effectively and efficiently match risk to capital. Net written premium grew 9.1% at a lower rate than top line.
This is because a significant portion of the top line was ceded to ILS with some modest net exposure growth in marine and specialty as we look to build out our offering to become a broader short tail specialist reinsurer. Our third-party capital management strategy continues to work well for our business, delivering capital-light fee income of $23 million, including ILS fees and quota share commission. The division delivered an underwriting result of $32 million, a 13.2% improvement on the prior year. The Combined Ratio is 80.2% despite 8 percentage points impact from Ukraine losses, Australian flood losses, the largest weather-related loss in the period, and prior higher prior year reserve releases last year. Moving on to our investment performance. In the first six months of the year, markets have been severely dislocated.
Continued disruptions to the global supply chain, exacerbated by lockdowns in China and the geopolitical turmoil in Ukraine, meant inflation has been more severe and persistent than expected. The associated risks to economic growth caused credit spread widening and equity markets to sell off materially in the second quarter. As a result, unsurprisingly, the investment result in the first half was a loss of $214 million. This includes $214 million of losses on our bond portfolio, most of which are unrealized, which we expect to unwind as the bonds mature. As interest rates have risen, we have started to see greater coupon income coming through, which has offset the unrealized losses in our equity and investment funds. I expect that the investment result losses will continue to be a significant drag on the group's pro-bottom line profitability for the rest of the year.
However, it is a clear positive that the reinvestment yield on the bond portfolio increased in the second quarter to 3.4%, up from 2.4% at the end of March and 1% at December 2021. The short-dated nature of our portfolio means that increases in risk-free rates lead to improvements to our portfolio yield in short order, and we see much improved prospects for investment returns for 2023 and beyond. As market concerns about a potential recession mount, it is important to highlight that our conservative strategic asset allocation makes our investment portfolio well-positioned for a downturn. While the length and depth of a recession cannot be predicted and no one is immune from its impact, you can see from the chart that our bond portfolio is both short duration and high quality.
Only 5.5% of our overall investment portfolio is in equities and investment funds, which have a quality bias. Now we look at our balance sheet where reserve resilience continues. We continue to take a robust approach to reserving, holding a $352 million margin. This represents 11% margin above the actuarial best estimate. Still above the 10% upper level of the range we tend to travel within, which is appropriate in the current uncertain environment. Inflationary pressures on reserves is a hot topic right now. We take a degree of comfort from several factors. Our reserves are relatively short tail with an average duration of 1.9 years, limiting the impact of any sustained bout of heightened inflation.
Various elements of inflation are already loaded in our loss ratio picks, and we have added a further $55 million net inflation load to our best estimate in the first half. Despite this, the group results still benefited from $77 million of reserve releases. Over the last 18 months, we have completed four Loss Portfolio Transfer transactions, which protect 20% of 2019 prior year reserves from inflationary pressures. Two of these LPTs were executed this year. The latest transaction was completed in July, reinsuring around $116 million of the group's share of Syndicate 33 reserves of the 1993 to 2018 years of account.
The transaction secures protection from reserve deterioration on classes of business we no longer underwrite, such as PI and healthcare, and classes that we continue to underwrite, but where we have revised our risk appetite such as USGL and US D&O. Since this LPT was completed in July, it is treated as a post-balance sheet event in the first half financial statements. These deals not only strengthen our balance sheet, but limit downside profit volatility from the back book reserves. Finally, let's look at capital. As at the end of June 2022, we remain robustly capitalized at 200% of the BSCR. The sharp movement in interest rates has had a broadly neutral impact on the solvency ratio as total investment result losses were offset by an increased discount benefit.
Organic capital generation added 8 percentage points to the capital ratio covering the payment of the 2021 final dividend and business growth. As of 30th of June, 2022, the group's leverage is 22.2%, below the 25% level we like to travel at in business as usual circumstances. We continue to maintain a well-funded and liquid balance sheet. I will now take you through some external changes that will impact our business going forward. One of my key priorities for the next 12 months is to successfully roll out IFRS 17, and we're making good progress. From a capital markets perspective, it is important to remember that IFRS 17 is an accounting standard change, and it will have no impact on our underlying economics of our business.
We will be looking to help educate the market, starting with a teach-in on the 27th of September that will be run by Deloitte, our IFRS 17 implementation advisors. Also, I would like to update you on the global minimum tax. At the start of the year, both the E.U. and the U.K. have confirmed that their timeline is unlikely to be met, and so we are unlikely to see changes for a couple of years. I will now hand over to Jo, who will take you through the underwriting performance of the group.
Thank you, Paul, and good morning. Even though the environment has not been straightforward, strong underwriting discipline and market conditions has meant opportunity for profitable growth, and I'm delighted how we are navigating through in all of our segments. Growing our portfolio 11.4% in constant currency at the half year, delivering $123 million of underwriting profit. On the next two slides, I'm referring to total Hiscox controlled premium, not just the group share, and all percentages are in constant currency. In London Market, our focus continues to be on balance, quality, and continuing to position underwriting control by leading more and delegating less. At a headline level, our gross written premium has reduced 2.9%, predominantly as a result of deliberate reductions in underpriced natural catastrophe exposure in our binder portfolios.
Since 2018, we have reduced gross written premiums in London Market with Nat Cat exposure by over $200 million. While rates have strengthened year-on-year, it has not been enough to offset the increase in frequency and severity, and so we continue to manage our exposure. Our net written premiums, however, has remained broadly flat as we continue to find attractive areas for growth, mostly in lines that have been materially repriced in recent years. We've taken the opportunity of the hardening market to focus on the profitability and quality of our portfolio, and this can be seen in our underwriting returns, which at the half year are delivering a mid-80s operating ratio despite 10 percentage point impact from losses reserved for Russia and Ukraine.
We've seen excellent growth in Re & ILS utilizing our third-party capacity strategy through ILS and quota share for both revenue and capital efficient fee income. The market has been more interesting this year, and we were able to capitalize on this through improved pricing and client relationships. The vast majority of growth ex rate has been supported by ILS, where our strong relative performance of our funds has led to increased inflows from our investors. Net written premiums grew more modestly at 11.6%, which is nearly all rates. Despite booking reserves for Russia, Ukraine, Australia floods, and other large losses, the portfolio generated a low 80s Combined Ratio, which is really pleasing.
Growth momentum is accelerating across retail now that our portfolio remediation has concluded in the U.S. and there's been strong recovery in quarter two in the U.K. As a reminder, since 2019, we have successfully exited $160 million of U.S. business as we refocus our U.S. retail portfolio to small revenue customers. Taking no allowance for the exits, we have seen growth of 6%, which increases to 8.5% if we just consider the go-forward portfolio. The Combined Ratio is on track for retail at 95.5% as the improved portfolio earns through. If you look at the next slide, you can see how this plays out by segment, where we continue to benefit from our balanced portfolio. The balanced portfolio enables us to flex and take opportunities depending on market conditions.
You can see the deliberate reduction in our property portfolio that I mentioned. What you can't see is the underlying exposure has decreased more than the premium as we have taken significant aggregate off the table in our London Market homeowners and commercial binders, while achieving rates on the remainder. Aside from property, each segment has seen growth. While an improving market, underwriting discipline and active portfolio management remains key as we continue to manage some underwriting headwinds, which can be seen on the next slide. Now, none of these headwinds are unique to Hiscox, but I thought it would be really helpful to talk through how we're successfully navigating some of these in our underwriting. Firstly, geopolitical. As you've heard from Paul, our loss estimates for the Russia-Ukraine conflict remain stable from those we gave at Q1.
The vast majority of the booked estimate is not yet incurred, and in some portfolios, claims not yet made. We are confident in our reserves for this event, but it's important to note the event remains live. Building on this is a potential heightened risk for cyber, although our experience in the first half is actually significantly quieter when compared to previous years, with claims notified down 30% in the first half. Now, some of this improvement is driven by our underwriting action and some by the environment. Secondly, the macroeconomic environment, particularly driving increased claims inflation. While not all economic inflation correlates to claims inflation, you heard from Paul how we are dealing with this in our reserves.
On business we have yet to write, I talked through at the year end how rate and premium inflation is keeping pace at or above trend, and this continues, and I'll go into this detail on the next slide. The next, societal. Social inflation is not new, and in addition to pure inflation, we make an explicit load for those portfolios exposed to social inflation. Lastly, climate impact. Reflecting the latest experience in science in our property view of risk is just business as usual, as is seeking to understand future litigation in our casualty portfolios. Looking in a little more detail on the next slide. Firstly, big ticket. You can see from the graph in the top right that we continue to push rates.
A further 8% in London Market and 13% in Re & ILS, and this is on top of the sizable cumulative rates we have achieved in both portfolios since 2017. As I have said before, early rate rise has offset view of risk, but more latterly, the rates are improving performance, which is evident in our results for these segments at H1. The graph in the bottom right gives you an idea of how the headwinds and tailwinds are playing through our portfolio. The first purple bar is our updated view of our 2021 year of account loss ratios. As we came into 2022, we doubled our historic long-term view of pure claim inflation, and we've now pretty much doubled this again, and you can see this in the first red bar.
As I explained, we model pure claim inflation separately to social, climate, and recessionary, and you can see the impact of those assumptions on the next three red bars. What are we doing to offset? Well, our inflation assumption has increased substantially, but so has our pure rate change and premium inflation. The first being the rate we apply, and the second, the additional premium we generate by updating our underlying sums insured. In aggregate, increased rate and premium is offsetting inflation assumptions, maintaining attractive returns. Now, I should point out that this level of inflation is not what we're seeing. The claim inflation that we're actually observing is materially less than this, but hopefully this gives you an idea of the detailed process that we go through and the assumptions we're making.
What you see here is an aggregated level, but this process is followed for each line of business. The next slide shows retail. Rate momentum is actually accelerating with rates up in aggregate at 7%. Cyber has been a driver with all retail businesses at materially double digits. However, we're also seeing price come through most other lines. U.K. and Europe have delivered attractive returns through the cycle, and the U.S. is now delivering better returns with the reposition of the portfolio, all evident in the 95.5% Combined Ratio. Similarly to big ticket, the chart in the bottom right details how we're navigating the inflation against these rates. Coming into 2022, we doubled our long-term claim inflation. At H1, we put through an additional 50% uplift.
We've also made an allowance on some portfolios for social and climate and can see the impact on the loss ratio as we counter with both increased rate and premium inflation to maintain attractive loss ratios. In summary, I'm really happy with our detailed process. I believe our premium growth is keeping pace or above our inflation assumptions, which as a reminder, are significantly higher than the claim inflation we're actually observing. Moving to the next slide. Now, it's not just the portfolio where we've been focused. People are our biggest asset, and we've spent a significant amount of the first half of 2022 developing our training program to equip and develop the underwriters of the future. Launching our Faculty of Underwriting, a new online underwriting training hub.
We assess the capabilities that our future underwriters will need, and we've developed specific content for each stage of an underwriter development. Thinking not just about what, but how we deliver. We've partnered with a gaming company, Attensi, to deliver bite-sized learning, and we're receiving recognition both externally and internally. The games are really addictive, with an underwriter on average doing each module four times as they look to better their score. When asked how we can make the training better, one underwriter responded with, "More of it, please." Another area of focus has been product development and making the most of the opportunities the current market presents. Customers' needs change over time. New strategic segments open up, or sometimes it can be opportunistic. On this slide, we have examples of innovation reflecting all three.
In London Market, we have enhanced our malicious attack offering to reflect the change in risk for many of our clients in an environment where cost of living is increasing, supply chain issues could lead to food supply disruption and potential social unrest. In the UK, we launched a new health and wellbeing product on our digital platform. It is designed to protect our customers practicing beauty, complementary sports, and fitness therapies. This is a growing market, and we've designed specific insurance cover as well as end-to-end expertise in claims handling. Finally, in the Re and ILS, pricing is becoming very attractive. In April, we launched a bespoke new vehicle for one of our long-standing clients who was keen to participate in some of the most distressed areas of the market. This gave us an opportunity to structure a high-quality specialist portfolio.
In summary, as I look forward to the second half, our plan is to continue to push rates ahead of inflation assumptions and grow where it's attractive. I believe our portfolios are very well positioned, and our large-scale remediation is behind us, with now a focus on ordinary tweaking and course correction. We're also focusing on our product developments, looking to pivot our micro cyber offer to a more simplified product, and we'll also be enhancing our sustainable underwriting proposition. Building on things like the success of LeakBot, which is a device that both detects leaks and mitigates losses in our homeowners portfolio. An example of a solution beyond traditional risk transfer to risk mitigation to not only protect customers, but to safeguard the interest of society. I will now hand back to Aki.
Thank you, Jo. Now for a few words on outlook. At the halfway stage, I'm pleased with our business performance. Our balance sheet remains strong with significant organic capital generation supporting our growth ambitions. As we look forward, we expect positive rate momentum to continue into 2023 for all of our businesses. As you can see from our performance, our big ticket businesses are turning great increases into margin and positive earnings momentum. In retail, the operational improvements and portfolio adjustments we have completed mean we're on track to achieve a combined ratio in the range of 90%-95% in 2023. Our continued investment in marketing and technology underpins an improving growth trajectory into 2023. Our strategy and diverse portfolio of businesses continues to create options and opportunities, and we're well-positioned to generate high-quality growth and earnings.
Thank you very much for listening.