Good morning. Very nice to see you all. Particularly with the number of announcements out this morning, it's good to see you all make it here. Got a few things to comment on really. It's a very strong underwriting result. I must say I really enjoyed working with Aki this year and seeing the new strategy unfolding. I'm impressed by his team. We have excellent new additions in Paul Cooper, who'll be talking to you today, who come back to Hiscox. Jon Dye as the new CEO running our UK company. Also the creation or recreation of the COO role under Stéphane Flaquet. Lastly, but not least, is we have Nicola Grant joining us as head of HR. It's not a case of rising tide lifts all boats.
When you look at our underwriting result, a phenomenal amount of work and energy has gone into improving the portfolio, led by Joanne Musselle for the last three years. You'll hear from her later. This means that we are very well positioned to take advantage of all the opportunities that present us. In a time of raised geopolitical risk, specialist insurers like us have a major role to play. We are therefore confident in paying an increased final dividend of $0.24 per share. Finally, you will have read that I'm retiring this year after 37 years at Hiscox and 50 years in insurance. I could say a lot of things and keep you here for an hour, but I won't. The most important thing I can say is I'm leaving the business in very good hands in the best market for at least a decade.
With that, I'll let Aki tell you how we have done. Aki.
Thank you, Rob. Good morning, everyone. I'm glad you all made it here in the snowy London morning. Look, I'm pleased to report really strong progress in delivering on the strategy and vision I laid out last year. 2022 has been a highly positive year right across the Hiscox Group as we've reached a number of significant milestones, which include achieving our retail combined ratio target a year ahead of expectations. Once again, our big-ticket businesses, London Market and Re & ILS, have delivered robust underwriting results with both of our businesses achieving combined ratios in the 80% range. Across the group, we've delivered our strongest underwriting results for many years, achieving a combined ratio of 90.6%. We're also facing into one of the most attractive reinsurance markets we've seen for over a decade.
It's into this highly attractive market that we are deploying additional capital. Our balance sheet and financial flexibility remains strong, all of this is underpinned by a newly established strong leadership group, and as you heard from Rob, made up of both internal and external appointments. We have an energized and passionate workforce, as evidenced by our employee engagement score, which is the highest we've seen for 10 years. This next slide is one that will be familiar to many of you, from last year, so I won't dwell on it for too long. Our strategy and diverse portfolio of businesses continues to create optionality and positions us to achieve high quality growth and earnings through the cycle. If you take the left-hand side of this graphic, this represents our big-ticket businesses, London Market and Re.
We operate in a cyclical market here, and we are in the rising part of the cycle, and I expect both of these businesses to grow in 2023. On the right-hand side, we have our retail businesses, and here we continue to face into large, attractive structural growth opportunities. With significant milestones achieved, all of our retail businesses are positioned to grow into this opportunity. Once again, all of this is underpinned by strong common culture and capabilities. As usual, I'm going to spend a few moments reflecting on the business performance of each of the divisions, beginning with retail. It's been a highly positive year for our retail business. We achieved our combined ratio target a year ahead of expectations following significant actions in the U.S.
Our U.S. business has now substantially completed the technology transformation, and the technology refresh in Europe is going well. Our U.K. business is now reinvigorated under new leadership. We have now set the course for our retail business to grow towards the middle of our 5%-15% range for 2023. Now turning to each of our retail units in a little more detail, beginning with the U.S. and in particular our U.S. digital partnerships and direct business or DPD. Now when carrying out a complex technology transformation, this is not an easy task. I am pleased to report that our technology transition is now substantially complete.
Now with this new core system in place, our USDPD business has the firm foundations from which it can scale and make the most of the huge opportunity, which we estimate at over 30 million small businesses in the US. Now, you'll recall from my half-year update that we've completed the customer migration for our direct-to-consumer business by the end of June 2022. What this chart here does is plot the quarterly year-over-year growth of our direct-to-consumer business over the last sort of 12 months- 15 months. What you can see is, as expected, growth slowed during the peak migration period, which was in the first half of last year, and has since the end of Q3 and into 2023 been accelerating as the new system embeds and as our marketing drive, our focus marketing drive takes effect.
You'll also remember from the half year that we were about to commence the migration of our digital partnerships business. This represents two-thirds of our DPD revenues. Again, I'm pleased to report that this is now substantially complete, with over 90% of partners and customer new business premium flowing through the new technology. The impact on growth, the pattern has been pretty similar. We are now in that post-migration embedding phase. The embedding phase for our digital partnership business is going to take a little longer than for direct, and that's because we've got 50,000 individual agents and producers who need to become familiar with the new technology, and our partners will begin remarketing the Hiscox platform. As a result, we expect growth to be subdued in the first quarter. Growth, however, will rise gradually through the year as our partners and agents ramp up production.
As a further boost to growth, following a two-year pause, we have this year added 15 new partners, and they'll begin production in the second and third quarter of this year. For the full year, USDPD growth will continue to be temporarily moderated towards the middle of our 5%-15% range before it accelerates beyond that range as we complete the embedding of our digital partnership business. The near and long-term opportunity remains incredibly attractive. With the new infrastructure in place, we've established the firm foundations from which our business can scale up and capture that opportunity. Let's move on to Europe. Our European retail business is 30 years old, and in 2022, we passed a significant milestone by growing it to over EUR 500 million of premiums. In true Hiscox style, we've done it entirely organically.
We are well-positioned in Europe to make the most of the significant small business and high net worth opportunity. In each of our European countries, we have local management who benefit from Hiscox core capabilities of first-class underwriting and risk selection, underpinned by a powerful brand and strong broker relations. As you can see here, the key engine for growth has been the specialist small commercial insurance, which has almost doubled in size over the last five years. As I just mentioned, Europe is going through a technology refresh. It's going well. It is less complex than in the US, as it's a country-by-country rollout. The digital business in Europe is more nascent, albeit the potential remains very significant. Moving on to the UK.
Like Europe, the key engine for growth has been the specialist small business segment, where we've increased premiums by 42% over the last five years and 8.5% in 2022 on a constant currency basis. We continue to evolve the products and distribution, most recently with the launch of our eTrade broker eTrade capability and also with the development of a risk management and services portal for our small tech and media clients. Moving on to our big ticket segments. Firstly, London Market. Our London Market business has once again delivered robust underwriting results. This is the third year in a row our London Market business has achieved a combined ratio in the 80% range. That's a testament to our focus and drive on building balanced and profitable portfolios.
Now, as you know, our London Market business is a trading business. It's where we lead the majority of the risks that we underwrite and where each of our underwriting teams have the flexibility to trade in and out of individual risks based on the risk and reward that they see, with the overarching aim of growing absolute profits. In 2022, our growth was tempered as we continued to trade out of underpriced cat risk and as we responded to the changing competitive dynamics in the flood market, and somewhat slightly moderated also by the impact of the sanctions regime applied to Russia. Now, as I look forward, the London Market portfolio is in very good shape. With a continued favorable market backdrop, I expect the London Market business will grow in 2023.
Staying on the theme of London Market, we're launching an ESG syndicate or sub-syndicate. We see this as being a significant long-term growth opportunity as around the globe economies increasingly invest in transition and green technologies. We will stay focused on our specialist areas in those areas that we understand and know well and combine that specialism with investing in new capabilities, which we will build over time. We'll be using a third-party screening tool to ensure each of the risks meets the ESG characteristics required by the syndicate, and in time, we'll be marketing this syndicate to third-party capital providers who want access to clients with ESG positive characteristics and access to Hiscox first class underwriting. At the service stage, this syndicate will be nested within our flagship Syndicate 33. This is in the early stages of development.
It's a really exciting development for us. This is a client-centric proposition as opposed to a customer-centric proposition. We're all pretty excited by it, watch this space. Finally, moving on to Re and ILS. Well, as I'm sure you've read, we substantially increased our revenues in this segment. We've achieved a combined ratio of 81% despite the significant market-wide losses that we've absorbed. This is an excellent result for our reinsurance business. I'm sure what you really want to hear is what could 2023 look like. The reinsurance segment is undergoing a seismic shift. We're seeing some of the best rating at underwriting conditions we've seen in over a decade. Demand for U.S.
cat excess of loss and global retro remains strong at a time when alternative capital and some traditional capital is retrenching, we've experienced some of that retrenchment ourselves. We saw significant inflows into the ILS fund in the first half of last year, we saw moderate outflows in the second half. I would have to say that the outlook for alternative capital in 2023 is uncertain. It's these sort of factors that will ensure that the current hard market is sustained. It's into this highly attractive market that we are deploying additional capital. As a result, at 1/1 renewals, we increased our net written premiums by 49%. If the current market conditions persist, I expect significant net growth in the Re & ILS business.
I'll hand over to Paul Cooper, our CFO, who'll provide an update on our financial performance and financial flexibility. You'll hear from Joanne Musselle, our Group Chief Underwriting Officer, on how we're driving disciplined growth in a complex environment. I'll be back to wrap up and provide final remarks on outlook and guidance for 2023.
Okay. Thank you, Aki, good morning, everyone. Aki has already covered a lot of ground on business performance, let me drive straight into the numbers, first on overall group performance. The group delivered a strong result. GWP is up 7.1% in constant currency, mostly driven by Re and ILS in Europe, we delivered a 90.6% combined ratio despite another year of elevated large losses. We delivered our best underwriting profit in seven years of $270 million, up 25% on prior year. This is testament to our focus on underwriting excellence as we execute our strategy of building more balanced portfolios to drive reduced earnings volatility.
As has been the case throughout 2022, the overall result for the year is dampened by mark-to-market losses on investments. We expect the investment result to become a tailwind in 2023, I will go into this in a bit more detail later. As Rob mentioned, thanks to our strong balance sheet, I'm proud to say we will be paying a final dividend of $0.24 per share, subject to shareholder approval. Moving on to our business segment, starting with retail. Retail GWP grew by 5.1% in constant currency to $2.3 billion, underpinned by strong growth in commercial lines in the U.K. and Europe. In the U.S., growth was dampened by a slowdown in the broker business where the strategic repositioning of the book is now complete.
As Aki has explained, the USDPD technology transition is substantially complete and is at the embedding stage for our partnership business. The momentum is expected to accelerate through the year. The U.K. is reinvigorated under new leadership and ambition, and Europe continues to go from strength to strength. In 2023, we're looking to increase brand investment across our retail business. The Hiscox brand already enjoys a strong position in target segments across our markets, and we believe it is the right time to drive further brand awareness and affinity. All of this means the retail business is primed for growth and is set up nicely to trend towards the middle of our guided 5%-15% growth range in 2023. This metric will remain broadly unchanged under IFRS 17. Turning to profitability.
I'm really pleased to be in a position to report a retail combined ratio of 94.8%, reaching the 90%-95% target range a year early. This is testament to the decisive actions we took over the last three years. We expect to operate within this range going forward. Under IFRS 17, the combined ratio presentation will incorporate the impact of initial discounting on claims. When we publish the results restatement in a couple of months, we'll suggest how to think about the retail core guidance in the new world. Moving on to London Market. Our focus on building balanced portfolios delivered strong growth in selected lines, namely public D&O, GL, upstream energy, terrorism, and cargo.
However, overall GWP declined 4.8%, mainly due to the combination of portfolio actions in the property binder business and the impact of Russian sanctions, which together accounted for 3.3 percentage points of growth reduction. As we look forward to 2023, we expect London Market to grow as we take advantage of improving market conditions. From an underwriting perspective, the business posted a strong result despite another year of large losses, and is building a strong track record of profitability with a combined ratio of 84.8%. It's the third consecutive year of London Market delivering a combined ratio in the 80s range. Finally, turning to Hiscox Re and ILS. Our Re and ILS business delivered top-line growth of 28.5%, passing the $1 billion milestone for the first time.
Much of the GWP growth was supported by ILS inflows in the first half of the year, while net premiums were broadly flat. ILS growth was a story of two halves. In the first half, as you may recall, our ILS funds attracted half a billion of inflows from an existing investor, which we fully deployed at June and July renewals. In the second half of the year, we saw $79 million of outflows as the uncertainty within the market regarding the availability of new or replacement ILS capital in the near term increased. This is hardly surprising following several years of losses for the sector and emerging investment opportunities elsewhere for investors as interest rates rose sharply. It is partly this uncertainty that drove improved rates and tightening of terms and conditions as we deployed our own incremental capital at 1/1 renewals.
Re and ILS delivered a solid core in the low 80s, despite a $90 million net loss for Hurricane Ian. Let's turn to the balance sheet. Our assets are conservatively positioned, our reserves remain robust, and our solvency and liquidity remain strong. Let me give you some color on the asset side first. As flagged throughout 2022, investment performance during the year was negatively impacted by mark-to-market movements on our bond portfolio, which led to a full year investment loss of $187 million. However, the majority of these market movements are expected to unwind as bonds mature. As a reminder, under IFRS 17, the impact of changes in interest rates is reduced as they're reflected on both sides of the balance sheet. We remain our relatively defensive portfolio with duration short and credit quality extremely high.
93% of our fixed income book is in investment-grade bonds, and we have a relatively small risk portfolio with no direct exposure to commercial real estate. On the positive side, reinvestment yields rose from just 1% at the start of 2022 to 5.1% at full year and 5.2% at the end of February. In fact, the short-dated nature of our portfolio means reinvestments are quickly raising the cash coupon component of returns. The portfolio has much improved prospects for investment returns in 2023 and beyond. Turning to liabilities next. Hiscox continues to be well-reserved due to the following. Firstly, we have a conservative reserving philosophy and are continuously monitoring claims inflation trends and evaluating reserve adequacy.
Secondly, in the first half of the year, we proactively strengthened our already prudent best estimate by $55 million as a precautionary net inflationary load. This remains unchanged after undertaking a similar detailed review at the full year. Thirdly, we completed two additional LPTs in 2022, and together with those completed in 2021, means that nearly a quarter of 2019 and prior year gross reserves are reinsured, protecting us from potential reserve deterioration up to a one in two hundred year risk scenario. Last but not least, as you know, at a group level, we also hold a margin above best estimate as an additional buffer to compensate for the uncertainty in timing and cost of claims. Our prudence is demonstrated by the continuous positive prior year development.
The chart, which many of you will recognize, shows the loss experienced by accident year. You can see a downward trend for every year presented. This means all years experienced favorable development in 2022. As you can see from the slide, at the year-end, the margin stood at 8.9%, down from 11% in the first half of the year. Through a combination of executing a number of LPTs and proactive action on addressing inflation, the uncertainty on prior period losses has reduced. Consequently, we have moderated the margin to be at the upper end of the target range of 5%-10%. The favorable period, prior period run-off is reflected in reserve releases of GBP 239 million in 2022, and these are from across all business segments. Moving on to solvency.
The group remains strongly capitalized, allowing us to take advantage of the currently attractive market conditions. Our estimated BSCR at year-end 2022 is 197%, with only a small year-on-year reduction, despite deploying incremental new organic capital in Re & ILS at January renewals into the hard market conditions, in line with our previously communicated intentions. Strong underwriting performance in 2022 more than offset higher capital consumption. We remain comfortably above the S&P A rating threshold and significantly above the regulatory capital ratio requirement, even in the rating. As the year progresses, we will continue to assess the opportunity and may deploy more capital if the market conditions persist. Our leverage is 20.6%.
After refinancing GBP 250 million of unsecured debt in September 2022, the transaction was in excess of 3x oversubscribed, demonstrating strong sentiment and market confidence in the group. The issuance of the notes was timed to coincide with the redemption of GBP 275 million of unsubordinated debt during December 2022. Fungible liquidity remained at around GBP 1 billion. All of this leaves us with a strong balance sheet and the financial flexibility to execute our ambitious business plan. To conclude, let's look at the IFRS 17 roadmap, which I know you're all extremely excited about. In 2023, we are now fully live with IFRS 17. The slide shows reporting dates.
Of note is the eighth of June when we will present the restated half year and full year 2022 numbers on an IFRS 17 basis, bridging these back to IFRS 4. This is the only bridge you will receive between the two standards. I appreciate this only gives you a couple of months to rebuild your models ahead of the half year 2023 results. Providing you with half year comparatives at this stage, we trust this will ease the pain a little. Will also help you understand how to think about KPIs and full year 2023 guidance in the new world. That's all from me. Let me hand over to Jo, who will take you through our underwriting performance.
Thank you, Paul. Good morning, everybody. As you've heard, we've grown and delivered a combined ratio just over 90%. I couldn't be more delighted with the underwriting profit of $270 million. The underwriting environment remained quite complex, keeping our discipline was absolutely key. We continue to benefit from our balanced portfolio, which allows us to flex and take opportunities depending on the different market conditions. Just looking at our segmental view that you can see on the slide from left to right. Our largest segment, which is our small commercial segment, this is our retail portfolio. Despite the repositioning in our US business, where we've exited about $160 million, as we've refocused that business to the SME segment, we've still managed to grow 5%.
In reinsurance, the market was more interested in 2022. We took opportunity through our clients, but we still improved our underwriting discipline, and we've really reduced the exposure to our aggregate and risk product. In London Market Property, what you can see on the slide is a reduction, as Aki mentioned, that deliberate reduction in that underpriced cat risk. What you can't see on the slide is the aggregate exposure has reduced significantly more than the premium. Across the rest of our portfolio, through exposure and rate, we've managed to grow through opportunity. Moving on to rates. This will be a familiar slide to most. This is our big ticket lines of our London Market and our reinsurance. These are our rates indexed back to 2017.
You can see in 2022, they have risen again, up 6% in our London Market and 13% in our Reinsurance division. That is on top of the sizable cumulative rates that we've experienced since 2017. I've mentioned before early rate rise offset increased view of risk, but more latterly, that rate rise is improving the margin, which you can see and obviously evident in those segments. What we've plotted here is our 1/1. Aki mentioned there was a seismic shift, particularly in our Reinsurance, where rates were up on our property line at 45% and on our specialty, 26%. From a retail perspective, retail rates are less cyclical. Our consumers and our small businesses looking for more consistency of rates.
Yet again, we've driven some increased rate in this portfolio. It's up 7% on average. Cyber was a driver of that rate rise across our U.K., but outside of Cyber, pretty much all lines have seen rate rise, and you can see the cumulative rates that we've achieved over the last few years in this segment. Returns in U.K. and Europe have been consistently positive through the cycle, and then the repositioning and the rate is driving adequacy in our go-forward lines in the U.S. Why was rate important to drive through? Well, because of some of the headwinds that have been moving through our portfolio this year, particularly inflation.
This is an exhibit that, or an update to an exhibit that I showed at the half year, it looks how those headwinds and tailwinds are playing through our portfolio. You can see is two graphs. The first graph, the top graph is our big ticket, London Market and Re & ILS, and the bottom are our retail businesses. The first blue or purple bar is our 2021 year of account loss ratio. This is our underwriting year loss ratio, not the revenue year loss ratio that we report. You can then see is the next two red bars is the impact of the inflation assumptions we're making in our portfolio. As a reminder, you know, the inflation assumptions that we're making in 2022 were multiples of the historic inflation that we have observed.
That's the first red bar. The second red bar is what we call change in view of risk. This is what people might call excess inflation. The first pure inflation, first bar is about the same claim costing more tomorrow than it did yesterday. Excess inflation is there may be more claims or certainly more severe claims due to other factors like climate or indeed social. What are we doing to offset? Well, that's where you see the green. The rates that I just demonstrated on the previous couple of slides, that's the impact of those rates coming through the portfolio. The next is what we call premium indexation. In addition to rates, we uplift our underlying sums insured, and we collect premium from that.
That's what we call premium indexation. The last lever is the underwriting action as it's coming through the portfolio. In summary, the inflation assumptions that we're making are being offset through rate and premium indexation, maintaining or actually improving attractive year of account loss ratios. Just as a reminder, the inflation assumptions that we're making is actually higher than the inflation that we're observing in our portfolio, and so as that goes through. That was sort of 2022. What about 2023, where you've heard it was a hard reinsurance market and we're a buyer and also a seller of reinsurance. Overall a net beneficiary from a hard reinsurance market. Firstly, as a buyer. I think as a buyer, we benefit from three things.
I think firstly, our understanding of the market, given our expertise. Secondly, we trade with reinsurance partners, many of whom we've traded for many years. Thirdly, we're a diverse buyer, a diverse buyer across retro, London Market insurance, and our retail insurances, and across property, casualty, and specialty. Overall, I'm really pleased how we navigated the market. We were able to place our reinsurance to execute on our enhanced 2023 plans. I've put on the slide some of the challenges that we faced at 1/1, and maybe I'll pull out a few. The first, terrorism. Russia, Ukraine has driven a harder terrorism reinsurance, and we have adjusted our balance of proportional aggregate and events.
There was also some tightening in terms of, in some terms and conditions. Overall, we have the reinsurance in place to enable us to capture the opportunity that hard market presents. In our nat cat business, again, we secured appropriate capacity for our enhanced 2023 plans. Some of the retentions have increased, and there has been some tightening of terms and conditions. For the rest of our portfolio, specialty and casualty, we placed our reinsurance programs on or actually slightly below budget. That's as a buyer and then as a seller. This is where our cyclical growth of our big ticket businesses come into play.
Those businesses expand and contract depending on the market terms and conditions, and we feel that we're now at an attractive part of the cycle. Why? Well, because we're getting paid more for that additional risk and terms and conditions are tightening. What you see here is an exhibit which really looks at our disclosed box plot and whisker charts going back to 2018, adjusted for CPI. What you have here is 3, what we call return periods. This is for our U.S. windstorm peril. The bottom line is the sort of 5-year to 10- year return period. The middle is at the 25-year to 50- year, and the top, the most extreme, at the 100-250 year return period.
You can see at January 2023, the impact that we've had. At that lower return period, it's pretty modest. Even though we have deployed more capital at that lower re-risk return period, it actually is a pretty modest. You can see actually that's a increase at the higher, more extreme. Actually, whilst an increase in comparison to recent past, I'll just note that during COVID, during the uncertainty of COVID, we particularly de-risked this peril. Whilst an increase in terms of recent past, you know, not unusual when you look across our history. This additional or this risk is balanced by a few things. The first thing the risk is balanced by is profits.
What you can't see on the slide is how much we're getting paid to take this risk. We've talked about how that market hardened and those rates increased at 1/1. That's the first thing it's balanced by. The second thing this risk is balanced by on that cat risk is our diverse and well-rated non-cat portfolio. Thirdly is the balance from retail. We have our significant retail portfolio. You know, I look back to 2008, our big ticket businesses on a growth basis have grown about 60% since 2008, and our retail business about 270%. Overall, you know, as a buyer and a seller, how you should think about our reinsurance?
What I would say is in a mean or modest year, you would expect our margins to improve, but on an individual claim event, our claim amount could indeed be higher. Insurance is technical. You know, underwriting, pricing risk, exposure management is technical. At Hiscox, we strive for technical excellence, and we talk about building out our digital underwriting ecosystem. What do we mean? I mean, put simply, this is about supplementing our underwriters to be the best that they can be through technology, through process, and through data, serving them up information so they can make the best decision on an individual risk or indeed as a portfolio through both internal data, but also using external data. In summary, as I look forward to 2023, I'd probably say three things.
The first I'd say is our underwriting portfolios are in a great position. Our planned remediation behind us, and we now have opportunities in all of our segments to build on the underwriting profit that we delivered in 2022. From a technical excellence point of view, we did a lot in 2022, more to do in 2023, as we continually want to raise the bar in that area. I'm delighted with my CUO team across the group. We had two new additions in 2022, Steve Prymas in our US business and Matthew Wilken in our Re & ILS business, who complement the significant experience we have elsewhere. We have really exciting opportunities in all of our different segments. You heard from Aki about our sustainable underwriting strategy being delivered through our ESG syndicate.
In retail, we're exploring emerging and adjacent areas, focusing on product development, particularly focused on risk mitigation. Lastly, in our reinsurance, well, these are currently very attractive trading conditions where we've deployed additional net capacity. With that, I will hand back to Aki.
Thank you, Jo. I guess before I conclude, I'd like to say a few words about Rob's announcement. Now, while there'll be plenty of time to say goodbye properly over the next few months, certainly for today, what I'd like to say is, I really valued Rob's clarity of thought, his advice, his human approach, and his fantastic support to me ever since I joined the business, and particularly on becoming the CEO. As you'll have read in the announcement, Rob's been in the industry for half a century, right?
A little young.
37 years with Hiscox. You know, Rob has been instrumental in transforming Hiscox from a really well-performing syndicate business to the successful global insurance company that we are today. Certainly I, on behalf of everybody at Hiscox, would like to thank Rob and wish Rob and Mary all the best in their retirement, in their well-earned retirement. He'll certainly be missed. Thank you. To conclude, that we have put solid foundations in place and we see substantial tailwinds in each of our markets. This leaves me feeling very optimistic looking forward to 2023 and beyond. In our big tickets, in our big ticket businesses, we're strongly positioned in this attractive market. Our London Market, in our London Market business, we've completed our major re-underwriting and the business will grow in 2023.
The reinsurance market conditions are the best we've seen in over a decade. Our Re & ILS business has the strong balance sheet, has the expertise and the ambition to grow. You will see substantial net written premium growth if the current market conditions persist through the rest of the year. Our retail business is primed to accelerate growth. Overall, I expect our retail growth to trend towards the middle of our 5%-15% range, with improving momentum in our UK business and a continued strong growth across Europe. In USDPD, we will continue to be temporarily moderated, or growth will be temporarily moderated with a subdued first quarter before building momentum towards the middle of that 5%-15% range.
Once the embedding of our partnership business is complete, growth will accelerate beyond this range, and there's no change to our longer term expectations. We're facing into an exciting environment, a significant and large opportunity ahead. With the infrastructure and team in place, our ability to capture that opportunity has only been strengthened. I expect our retail business to operate within the 90%-95% combined ratio range. When we publish our IFRS 17 restatements in June, I'm sure Paul will help you understand what this means in the new world. The favorable market conditions and the investment income tailwind, together with the actions that we've taken across our business, means we look forward with confidence. Now we'll take any questions that you may have.
Oh, by the way, microphones are in the chairs, behind the chairs, on the back of the chairs in front of you. Let's start with Will, please.
Thank you. Will Hardcastle, UBS. A quick one to say thank you, Rob. Always enjoyed our interactions in the past. First one, Aki, last year you guided to mid-80s and low 80s combined ratios on London Market and Re & ILS. I guess we've got enormous risk-adjusted price increases that we've just seen. How much of that should we think about dropping down to margin? If I'm pushing it, would you be as generous to give those sort of forward-looking statements again for 2023? Second question. You mentioned London Market's gonna grow in 2023. I guess some things we're hearing is that, you know, capital's really incredibly important this time around. A strange statement to make, but it feels like there could be some real winners in that marketplace.
I guess, do you think that the growth, has a lot of the growth emerged already through renewals to date, or is that a later in the year type development? Thank you.
Okay. Thank you, Will. I guess combined ratio guidance, it wasn't strictly guidance, but I think I was asked at the time what margins did we think we were writing the business? Margins, as you can imagine, in a big ticket business reflect an average, so on a mean basis. At the time, I'd said mid-80s for London Market and low 80s for Re and ILS. We would regard 2022 as being probably an average sort of year. If anything, the result in 2022 gives us confidence that our calibration of risk is in the right zone. It's never gonna be perfect. We're not in that sort of business.
Now, given the rate increases that we're seeing, I would expect our London Market business to be in and around the same level, maybe one or two points better because we are seeing some improvement in rates. The more significant rate improvements and margin improvements we're seeing are in Re & ILS. All else being equal in an average year, I would expect that combined ratio to be probably in the mid to high seventies. That's pretty apparent in the chart that Jo showed, which shows that the increased cost of risk at those lower return levels is very, very attractive given the higher premiums that we're now receiving. In terms of London Market, the London Market growth, it...
Unlike the reinsurance book, it is more continuous through the year, as opposed to the reinsurance book, which is heavily weighted towards January, where we normally write 40% of our annual premiums. I would expect, based on what we see today, for the rate environment to continue to be favorable for the rest of the year, and I would expect growth to come through the rest of the year. We have grown so far in the first quarter. Andrew.
It's Andrew Ritchie from Autonomous. I've got four questions, but I think they're quite short. Could you give us a bit more color on the direct, the DTC, direct-to-consumer experience in the US since June? I mean, you indicated it's positive, but, I don't know, maybe things like conversion rates, just some sense to really how much benefit there has been from the new systems in the DTC. The second question on the same unit, I think you said 15 new partners. I thought there were 150 partners. Is that a 10% growth in partners in Q1 or in 2023 already? Maybe just clarify, are those particularly large partners or any sense? How long does it take a partner to go live? Third one, I should know...
I don't know what. You said there's a UK initiative. I think you described it as eTrade, broker eTrade. I don't know what that is. I thought brokers already e-traded. Maybe just tell us what's so innovative about that. I've seen lots of branding and fancy red boxes at Lloyd's about it. Just tell us what it is. Finally, dry powder. When I look at the Slide 27 on the RDSs, which is very helpful, thanks for that, I mean, I can't see why you wouldn't take those RDSs back up to historic peaks. I appreciate you're trying to manage down the volatility of the business. The retail recurring earnings power is materially higher than some of those historic peaks.
Maybe I'm just getting a sense, does that imply there's lots of dry powder for further cat growth the rest of the year? Thanks.
Okay. 4 questions. We'll take them. In terms of where and how much volatility we wanna take, if I take the last question first. Joe, can you just reflect on where we might see those peaks go? I'll take the other three questions first. In terms of our DTC experience, maybe if I can get back to that slide. No, I can't.
No, I don't think we can get it.
Okay. The DTC experience has been, as you saw, a slowdown in the first half of last year. From the end of the third quarter, we've seen a nice and steady pickup, and that's continued into January and February of this year. It gives us, of course, confidence because those are tangible proof points. The technology is working. Our customers like the technology. Conversion rates are up. There are a range of other benefits, which I may well have referred to earlier, but, you know, it's things like conversion rates are up, the cross-sell is up, although not in a meaningful way yet. Right? There we still need more data points and actually more marketing to drive that.
We're pretty happy with the way, with the curve that that growth rate is taking. That gives us confidence that on fully embedding all the processes with our partnerships business, that that will follow a similar trend. In terms of the number of new partners we've added, if you remember, I think we disclosed, I think, at the half year that we had a pipeline of partners that had been waiting in the queue for a couple of years. I think there were about 18 partners or 20 partners at the time. 15 partners of them have now been added, so the technical work is now being done in terms of connecting systems. It's now the onboarding process and marketing of platforms and so on.
That will typically take us to the end of Q2 into Q3. In order for a partner to become fully productive, that takes time. Right? It takes time. These 15 partners are not of the scale of, say, our top five or top 10, so they are smaller opportunities. The key thing here is we've not added any partners for two years, right? This will be additive and will boost growth. Frankly, when you add these partners, there are some no-brainers, big insurance companies, et cetera. Others take time to develop, and you never know which one is gonna make it big. We've got 15 new partners there. In terms of the broker eTrade, look, in the U.K., we've had various iterations of eTrade capability.
What we've developed or launched this time is what we call a full cycle eTrade capability. What that means is that for those brokers who are, for want of a better term, fully embedded with the eTrade capability on binding of the risk, which is done through this automated process or digital process, it also populates their back office if they're on the same platform. Given the platform we're using is very commonly used within the UK, that is a quite a significant benefit if you think about productivity and not having to double-key in data once into our system, then book it onto their own system. That is a massive benefit. As far as we're aware, I think we're the only company that does that at the moment in the UK.
In terms of dry powder, Jo, do you wanna come forward?
Sure. Yeah, absolutely. If you take us back to Slide 27, I think ultimately, Andrew, it depends on three things. I mean, firstly, it depends on the market conditions. You know, we've shown position at, you know, January 23rd, obviously it depends on the market to conditions as we go through this year. I think that's the first thing it depends on. I think the second thing, obviously it depends on, you know, capital. You've heard from Paul, you know, we're in a strong capital position, we have the financial flexibility. Lastly, it depends on that balance and shape of the group. You know, we have a balanced strategy, a balanced portfolio, ultimately it depends on that.
You know, I think taking all those three things in the round, you know, clearly I can't predict, you know, what's gonna happen in 2023. Could you expect though that the half year to be slightly up? Yes. But, you know, obviously that depends on, you know, the market and the, and the terms and conditions as we progress through.
Cameron.
Okay. Morning. It's Kamran Hossain from JP Morgan. Three questions. The first one's just on the inflation charge that you booked at the first half. Obviously, it sounds like that's untouched. Could you maybe give us an indication of how much of that sat in retail versus other areas? Just trying to get, like, a sense of what underlying profitability looks like in retail, whether that could be better than 94.8%. The second question on the capital ratio, I guess 197% is very strong. How much future exposure growth do you foresee within that 197%, and how much lower could the 197% go to keep you at AA in your stress scenario? I have a third one, which is a bit of a philosophical question. You've kind of...
You've given us, you know, the retail, you know, kind of combined ratio guidance. You've given us a signal for London Market and reinsurance. At what point can you give us, like, a group combined ratio guidance? You know, we look at two of your London Market peers, we get a, kind of, an overall group sense. Is there anything stopping you from doing that going forward? Thanks.
Okay. So in terms of the inflation question, Jo will address that. On capital ratio, Paul will address that. As far as providing guidance, I think we provide quite a lot of guidance. We don't intend to provide a group level combined ratio guidance, where it's a, it's a volatile business, and we want to retain the flexibility to do what we think is right for our shareholders and for our business, as opposed to be constrained by, you know, providing, frankly, too much guidance, I think. Jo?
Yeah. In, in terms of the inflation charge at the half year, you're absolutely right. We took an inflation uplift. We talked about it being precautionary, but it went into the best estimate. That was a GBP 55 million net, obviously higher from a growth, and that was spread across all segments. We didn't break it down in terms of the different elements, but it is taken through to all segments. I think as Paul referenced, we've done, you know, a significant exercise in the second part of the year to look at that actually to keep it exactly the same. You know, I think that belies the sort of, the work that we've done.
Again, you know, we're seeing that as a precautionary uplift but, you know, as Paul mentioned, that is in the best estimate, and then clearly we've got our margins on top. With regards to the go-forward business, obviously that was taken on prior business. In regards to go forward, you know, as I've said a couple of times, you know, we're pricing that through our business, both through rate and the premium indexation. You know, you can see on the slides, you know, that is being offset, maintaining and, or indeed sometimes improving those attractive loss ratios on a year of account basis.
I mean, just to answer the capital question. I mean, we're in a really, really strong position. You'll see that we're around the 200% level from a BSCR basis. If you wind back, you'll also remember that the BMA over several years has been strengthening that by to the tune of 30%-35% around that. I wouldn't quote on that, but, you know, it gives you a sense that actually the 197 in old money is actually much, much stronger. You know, what we've shown, and you can see on the chart, is that we're highly capital generative. If you think forward, you know, investment returns are gonna boost that capital generation capability. It also shows, you know, the 14% consumed for growth reflects 1/1. We've already sort of deployed that capital.
We said we would, and Aki talked about the attractive environment that that was deployed into. You know, we don't have a level, we don't sort of set a level, but what I would say is, and to your point, you can see this, the sort of combined stress. It's pretty extreme. One in 200 industry loss combined with ongoing economic stress, more than $500 million . You know, and it shows that we're still consistent with the A rating. I would say, you know, we're very strong in terms of the balance sheet. We've got a lot of capital to play with. We're not constrained in any way from a sort of growth perspective and growing the business and deploying capital. It does come back to what Jo was saying around shape, you know, overall volatility and opportunity from a market conditions perspective.
Andreas.
I hope it is working. Yeah. Hi. Andreas from Peel Hunt. Three questions, please. One on the property cat book. Thank you very much for your additional disclosure on volatility. If I take the whole property cat portfolio within Hiscox Re, what is the mean return assumption, return on capital assumption you're embedding in that portfolio, please? Secondly, you're taking more risk on that book, which makes a lot of sense. I just wonder because of the balance you have in your portfolio, by taking on that more risk, you're probably getting more diversification benefit in your capital model. How large is that diversification benefit, and how has that increased?
Finally, on the $1.9 billion in assets under management in your ILS portfolio, just thinking about allocating that into 2023, how much of that will be reinvested, and how is that allocated within Hiscox? Is everything going into Hiscox Re, or are you moving into a number of sidecars, and is any of that capital moving into the London market? Thanks.
Okay, Andreas. Thank you for that. Some kind of technical questions there. In terms of property cat return on capital, we do it at a portfolio level. When you put the whole portfolio together, we're very satisfied with the return, capital return, dynamics. In terms of diversification, I think you might wanna take that offline with some of our capital gurus who are here, in terms of exactly how that plays into our, into our model. As far as ILS AUM is concerned, look, we have $1.9 billion at the end of the year, but it's not all deployable. There's an element of trapped capital in there. The change from, say, the heyday is when you had trapped capital, ILS, more ILS capital came in to offset that.
We're not seeing that this time around. I don't expect to see that in 2023. When I look at it from a full year perspective, there will be less, likely to be less ILS capital that can be deployed. It is predominantly deployed in our reinsurance business. Now that is a sort of sector-wide comment as well, I would say, because, you know, our investors invest in other ILS funds as well. Last year we saw an inflow because we were seeing some pretty good returns in our book. Generally, there is just a reduction in appetite because of not one year, but five years of less than expected or lower than expected results. There's uncertainty there. That in itself is now boosting or sustaining an attractive market.
It's into that attractive market that we're plugging some of the gap by putting in our own capital. Hence, when you see the dynamics of our Re & ILS business, gross premium will grow it will grow, but it will be significantly lower than our net written premium. If you cast your mind back, this is exactly what I said 12 months, 15 months ago. That in a harder market, this is what you should expect from our Re & ILS business because we're not gonna go out necessarily hunting for new clients. We have some very high quality clients. Actually, what this dynamic allows us to do is just retain more bigger lines, retain the net on our own book with those existing high quality clients. Ivan.
Hi. It's Ivan Bokhmat from Barclays. Thank you. I've got three questions, please. The first one is in retail. You've mentioned you plan to increase brand spending. Just wondering what kind of flex around that do you have, and what's the elasticity of your investments into the top line growth? As in if you have an extra $100 million brand investments, how much can that add to your growth in retail? The other two questions are on the large ticket lines. First, I think you've in the past, you've given us a breakdown of the overall portfolio and some parts were, let's say, in course correction mode. Is there any of such portfolios left at the current shape of the group?
Maybe the third one also related to that, you have exited a number of lines over the past few years. Is there any interest in going back into them, and where do you think the gaps might be? Where could the appetite, flow to? Thank you.
Okay. I'll take the question on retail and brand spend and so on. Joe, if you take the question on portfolio correction and whether we ever wanna enter some of the exited lines. In terms of the brand spend, look, in our overall marketing expenditure in 2022, we increased by 20%, mostly skewed towards the second half of the year, as we upped our marketing in the U.K. and then particularly in the U.S. as the new D2C platform came on stream. In 2023, we will be increasing the expenditure again between 10% and 20%. The brands, if I split the marketing spend into two, we have what we call acquisition and brand. Brand is a long-term build, right?
This is about creating awareness about the Hiscox brand. Ultimately it reduces the cost per acquisition. The acquisition spend is almost, it's almost scientific. As long as you know what the market size is, you know per dollar with the backdrop of a good brand, what you're going to collect. I think $100 million additional would be a waste in a 12-month year by 12 months sort of a period. you know, there are of course circumstances where we could potentially increase the brand, sorry, marketing spend, and there will be, with probably six weeks lag, you would see that coming through into income.
In terms of cost, you know, with the total portfolio.
I will perhaps think about it this way in the retail business, that for each $1 of spend, we will acquire a $1 of premium. That $1 of premium then stays with us for a number of years. If it stays with us for five years, you've made your money back. If it stays with us for longer, then you're really, you are making some very, very nice returns. Our retention periods are on average, in excess of five years.
With regard to the course correction that we've made, particularly in our big ticket business. You're right, you know, we've done significant course correction over the last few years. We've exited wholesale some lines, things like aviation, and then other lines have been in remediation, things like the property buying portfolio. Where we are, as I said, you know, our planned remediation is behind us. We've done all of the remediation substantially completed in our lines. You know, as Aki said, you know, as Aki alluded to, we're looking to grow those lines. I think in answer to your question, you know, both in London Market and then in Re, you know, we've exited things like casualty reinsurance.
That was a line that we've exited and a portfolio called healthcare. In answer to your question, you know, do we foresee going back into any of those lines? I think, you know, it's to understand why we come out of them in the first place. We come out of them for a few reasons. You know, one is expertise. You know, have we got the expertise? It's not just the underwriting expertise, it's what we call that broader underwriting ecosystem. That's our expertise in claims, in reserving, that broader expertise. Secondly, you know, we exited because we have to make money in the market that's in front of us, not the market that we'd like to be in front of us.
If they were not delivering the returns that we needed, and we didn't anticipate that that market was gonna substantially shift, then, you know, clearly that was another reason. On those lines that I've mentioned, you know, we've got no plans to go back in.
Faizan? Faizan, sorry, could you speak up a little?
Can you hear me?
Yes.
Yeah. My first question is on sort of DPD growth. Last year was 9.7% last year, and you had sort of three quarters of uploading the sort of partnerships. This year, you only have one quarter, and yet you're guiding for 10%. If you could bridge why it's not higher. The second question is, I understand you can't really give guidance in terms of how much, what level capital you want to be at, but given the fact that Re & ILS tends to be quite capital consumptive, and, you know, if we were to grow $100 million more in that business, where does that bring your capital position down, given the fact that you have rates and diversification? Just help, you know, if you could help me understand that.
The third is on reserve margin, still very, very healthy. If I just look at the absolute margin and add back the $55 million, it's come down year-on-year, and yet your reserve releases were high but below your sort of margin levels. Just understand what's changed there. Thank you.
Okay. Paul, do you want to take the capital and reserve margin questions? Regarding DPD, I guess the thing to note is, you know, break down the segments, right? Our direct-to-consumer business makes up one-third of our total DPD business, that went through the migration process in the first half of the year. Then you saw the gradual uplift in Q3, beyond that, it's been doing very well. Okay. Our digital partnership business makes up two-thirds. It's the majority, right? That's been going through the migration process from September. Frankly, as I said, we're 90% done, we're not fully done, right? We're on the way. Then the coming out, the traps, as it were, it's gonna be slower.
On the direct-to-consumer side, it's not quite like flicking a switch, but you know, it's a lot easier. We have all the levers. Once the system is on working, all the and the portals are all open for the customers, it's a case of driving the marketing, getting the marketing done, getting back in the market. On the digital partnership side, it's 50,000 people like us, right? Over 50,000 who've got to change their login, change their password. They're used to one routine. We're now moving from, I guess, let's say a more basic access regime to a multi-factor authentication, all that sort of stuff. New things that people have to learn.
Also then our partners need to begin remarketing the platform, which has been again on hold for the last three, four months while we were going through this change. That embedding process is just gonna take a bit longer for a larger part of the business, right? Hence, Q1 is gonna be subdued, right? It's gonna be less than, you know, the average that we've had for 2020, 2022. Then it will gradually build up. We have the confidence that it's gonna build up because, well, look at the direct business. It's building up. It's going well. We're seeing higher conversion. We're seeing higher revenue per customer. We're seeing more operational efficiency come through. Those are factors that will emerge, but it's just gonna take a bit of time.
I think that would extend into the latter part of 2023, it's temporary. Right? This is a question of timing. The overall market opportunity is as exciting as it was last year, as exciting as it was the year before. The U.S. economy remains incredibly strong. New business formation is strong. Demand for insurance is robust.
Yeah, and Faizan, to your question around capital, you're right to point out that the business and the group as a whole is, you know, pretty well diversified. You've got the London market. You know, Jo mentioned about the retail and the profit that drives. Then also, you know, Re & ILS and getting paid for the capital that we have deployed...
You know, all of that in around gives you a pretty well-diversified business from a capital perspective. You know, we have deployed it. You know, US cat is really the driving peril for the capital model. You're right to highlight that. You know, the things I'd point out is once you have that from a capital consumption perspective, we've seen on the chart that the actual capital generation of the business is really strong. Again, if you're moving into an environment of interest rates moving to, you know, 5% versus the 1% of 2021, you're getting strong capital generation from underwriting, strong capital generation from investments. It's a short tail book. That turns around, and that strength of the capital generation comes back in pretty, you know, pretty short order.
You know, overall, you're right to part, you know, highlight the moving parts. You know, we're just not constrained from a sort of growth perspective in terms of what we wanna do for our plans.
Sorry, just to follow up on that quickly. Does that suggest that at H1 or 161.7 you'd be willing to run at a tighter level, knowing that it's quite capital consumptive and that it'll bounce back later on?
Yeah. I mean, look, it comes back to the point of, you know, we can tolerate, you know, a dip. We don't have a target. The capital generation, though, for the full year is pretty robust.
I mean, it'd be right to say, I mean, given our business plans and, you know, we're not done yet. We do expect more growth in our big ticket business. I don't expect a material change.
Yes. Then on reserving. I think there's, you know, several things to sort of put together. One is that we have a conservative, reserving philosophy. You know, we're constantly monitoring our reserves. You start with that. You're right to highlight we conducted the extensive inflation exercise both at the half year and the full year, and we put up the $55 million. That's in the best estimate. We need to really make that explicit, that it's not in the margin, but it was an addition to the best estimate. It was precautionary. You know, Joe mentioned we're not really seeing any signs of extensive, uplifts from an inflation perspective in the claims.
You've got on top of that, you know, our LPTs, we've conducted four of those in two years, and now we're protected to the tune of nearly 25% of our 19 LPTs and prior. We've got good protection. That gives us more certainty around the portfolio of losses that are in those reserves. You know, you've demonstrated in the reserve runoff page that with this is across all years, a steady downward trend, and you've also got it across all business segments. You know, from that perspective, I think if you hold the margin in that context, and again, you know, we've been at 11%. It's been above the upper bound of our target for several years. We've now got more certainty of those reserves, and now we're sort of towards the upper bound of the 5%-10%.
Faiz, we might wanna stop there.
Thank you.
Chris.
Hi, can you hear me?
Yes, loud and clear.
Just 1 question. I appreciate this is probably one of the longest anticipated recessions now. Say we do get a recession and obviously, globally or particularly in the U.S., how sensitive, how sensitive is your retail business to that, given that you reposition to cater more to micro SMEs and how much, how conservative is the guidance for growth in that regard? Thank you.
Chris, it's the sort of billion dollar question. It depends on the nature of the recession. You know, each recession can be quite different. Look back at the Global Financial Crisis, which is quite different to the short, sharp crunch that we had during COVID. During both of those scenarios, albeit the retail business in 2008 was considerably smaller, we didn't see a huge impact on the top line. Of course, there'll be some impact. I'll say what I said last year. It depends on the duration of the recession. Short, sharp shock, we'll ride through it. Of course, there'll be some impact, but I expect to be within that 5%-15% range somewhere, right? Probably, maybe not towards the middle, maybe a little bit less.
If it's a long and deep recession, you know, come and ask me then, right? We don't know specifically what the impact will be. What the COVID, the recent crunch demonstrated to us is small businesses are robust. Remember, the vast majority of our small businesses by volume are one-man businesses, one-person businesses, right? What we saw during COVID is this is your only means of income. You pivot. You do something else. You're creative. You know, if you run a restaurant, you do a takeaway. If you did a takeaway, you start doing home deliveries, right? You move on, you do something else. We think the, you know, the customer base is quite robust, very creative, very entrepreneurial, good at reinventing themselves. We're not immune from, you know, macroeconomic events.
Sorry, just right at the back there. Then Freya will do. No, you. Sorry.
Hi. Darius, KBW. Just one question, but very broad. You're now back on track in terms of the combined ratio target range. If I sort of step back and look at the long-term history of your retail book, the market was willing to pay a very high multiple for your retail business up until the tumble in 2019. If you were to describe the main changes that you've done to the business, how you price risk, how you select risk, how you run that business operationally since then, that'd be very helpful. Thank you.
Thank you, Darius. I guess the main changes, and you may well remember from when we reported in 2019, 2020 as to what some of those issues were. We've as you just heard earlier from Jo as well, talking about portfolio creation, we refocused our U.S. business. In particular, the retail traded or the broker business, where we had gone into areas where frankly we did not have the expertise, and there was some very volatile risks. We've really moved away from that. The U.S. traded business is not quite the same, but looks much more like our European and U.K. traded business relative to what it did before. Those businesses perform very well. We are experts now in the business that we write.
We also improved the capabilities in our U.S. claims function. That was also one of the reasons why we had, as you say, the tumble in 2019. It wasn't purely the underwriting, it was the fact that the business had grown so quickly, and frankly, we just hadn't kept up the uplift in the operational capabilities. That has been under a rebuild under Kevin Kerridge, our CEO, and Tom, the head of claims there, over the last two, three years. That is looking much better. You're never done, but that's performing much, much better. You'll also remember that the third reason for the tumble was actually self-inflicted, right? It was a deliberate thing that we did because of what we were seeing in the market, which was to change the reserving patterns for our casualty book.
We elongated the patterns, and that meant that previously, actual versus experience, positive experience would come through into the P&L very quickly. We said, "Actually, that's gonna slow down." Right? That has slowed down. That's apparent in some of those curves. You can see a bit of a rectangulization in those reserve, the PYD curves. Well, that's part of the reason, right? We're holding on to that, excuse me, holding on to those initial loss peaks for longer. If the positive experience comes through, then ultimately it does end up in the P&L. We're now three years on from that, and that is beginning to sort of turn the cycle. We're lapping that. I mean, it's all of those factors.
The fourth factor, I'll kind of stop there 'cause there's lots of things. I could give you a list of 100 things that we're doing. The fourth major factor is we've also executed four LPTs. One of those was largely focused on retail. Three had a bit of a mixed impact. What that does is protect us from back-year volatility from exactly those risks that we've now exited. You take that package together, and those are all the reasons why we are now confident of operating within the 90-95 range.
Okay.
Sorry. Go ahead, please.
All I was gonna add was just, you know, your question around, you know, the sophistication in sort of pricing, risk selection, underwriting. Not just in retail, but across the whole of our business, I mean, the last few years we've made significant investment in things like, you know, building on that sort of underwriting ecosystem I talked about, you know, and, you know, data and analytics. A lot of that business is what we call portfolio underwritten. You know, our pricing muscle, our pricing capability. What you should see across all of our business is, you know, what we call constant course correction. The world changes, you assume something, you've got to measure it. If it's slightly different to your assumption, you've got to tweak your portfolio.
You know, that might be slightly increasing your prices, retention, but it's that constant course correction muscle that we've really invested in over the last few years. We're not gonna get everything right, but if we've assumed something and it turns out to be slightly different, you know, the trick is to know about that really quickly, and so that you can slightly adjust. It's really that investment in that, in that underwriting ecosystem which I think has been really key.
Make this the last one. Freya?
Thank you. Shanti Kang from Bank of America. I apologize to holding you for guidance. At half-year results, you said, you expected USDPD growth to be in excess of 15% in 2023, and now we're moving to around 10%. What do you know now that you didn't know at half-year results or nine months about the complexities of the technology, embedding partnerships, and is there any risk of this slipping further? Secondly, just stepping back and looking at retail as a group, it grew 5% at constant FX in 2022, yet you added 55,000 net new customers and you had rate increases of around 7%.
Given that there was just a very small drag from restructuring, which was mostly done in 2021, what's changed about the book and is there a net exposure reduction that you're seeing? Are you moving into lower average premiums? yep. Thanks.
Okay. Thank you for holding me to guidance. Yes, I did say it because that is exactly what we expected. What do we know now that we didn't know then? The fact that the embedding process for our partners was going to take longer than we had anticipated. You know, there's no doubt there. There was a degree of perhaps optimism reflected in August. Now, you know, could there be further slippage? I mean, the probability of that is low because we are now 90% done in terms of new business premium flowing through to the new technology, partners connected to the new technology. We're now in the...
The customer migration is less of an issue, and it is now about embedding and getting people used to using the technology. The other thing, if you remember what I did say last year, was that on the partnership side, it takes two to tango. On the direct-to-consumer side, most levers are within our control. On the partnership side, there's a degree of development that has to happen at the partner end and at our end. Our DPD business is incredibly important to us, as is each of our partners. Some of those partners are very, very large businesses for whom the DPD revenue or their commission is a small income stream, right? We are not always number 1 on their IT stack of things to do.
That's the other reason why. You know, migration has then taken a little bit longer because that development, whilst we were pushing hard, for them it was number five, for us it was number one, and you've got to wait until you're connected on both sides. It was those factors. Some of those factors were outside of our control, and now the embedding process is gonna take a little bit longer than we expected. The confidence comes from, look at the direct business. It is now, I would say not fully motoring, but it's, well, it, you know, it is getting there now, and, you know, every month seems to give us another positive point.
Now, on the partnership side, I said the code, the IT stuff is now almost entirely done in terms of connecting to partners. It is now about the mindset, the psyche, getting people, giving them, everybody, new logins and used to the new routines. I expect once that is all complete, that the growth will go beyond the middle of the 5%-15% range. In terms of the overall retail growth, look, in 2022, we did have a drag from our retail from our U.S. traded book. That was actually negative, and that came into this year. We also had a bit of a drag from our U.K. business, which increased just under 3%, albeit the commercial business grew by 8.5%.
The high net worth and some other business that we don't package within our commercial business was being repositioned, and there's some work being done there. Now as I look forward to 2023, the sort of 4%-5% drag that we had from our US traded book, well, that won't be a drag. You know, even if you assume it's zero, it's gonna give us an uplift from the 5%. But we don't expect it to be zero. I expect it to grow. And the UK business, we've had a good start to the year, and I expect it to grow. I'm not gonna give you a growth target, but it's gonna be within the range somewhere between 5%-10%.
All of that gives us confidence that for 2022, sorry, 2023, notwithstanding the temporary moderation in USDPD, overall retail guidance remains.
We've got one question online.
Oh, apparently we've got one question. Online or on the phone? On the phone. Whoever you are on the phone, can you say your name and ask your question please?
Thank you. We have a question from Darragh Law of RBC. Daryl, your line is now open.
Hi, Darragh.
Hey, Aki. Just one question please on your expense ratio. It seems that it went up year-on-year across the board. What are the main drivers within the 3 segments please, and also what do you expect for 2023 and beyond?
Okay, Daryl. We didn't quite get all of your question, but I think it's about the expense ratio and what it might do-
Yep.
in 2023.
Can you hear me better now?
Yeah. Yes.
Yep. I was saying in 2022, the expense ratio seems to have gone up across the board, across all three segments.
Right.
What are the main drivers there? Secondly, what do you expect the expense ratios to do for 2023 and beyond? I know you spoke about digitalization. At the same time, you spoke about brand investment in retail, et cetera.
Yeah. Excellent. Okay, thank you, Daryl. Paul's been waiting for that question all morning.
Thank you very much. Yeah. Let's recall that we are a growth business, and you've seen that in the numbers. You know, in order to do that, we're gonna grow and invest in people, technology, and Aki talked quite extensively about investment in marketing. Those are some of the underlying drivers. You know, it's also been a backdrop of 2022 of, you know, relatively high inflation. We've also seen that. I think it's mixed views around whether inflation has peaked. I think there's a strong sentiment that perhaps it has done. I think if you look forward, you know, our investments, particularly around technology, should drive out operating leverage over time. You know, the scale benefits of that will be clear.
Similarly, we've got scale benefits from marketing. Essentially, you know, that leverage does provide further capacity to reinvest into marketing and grow further. That's generally just the direction of travel. Other things that we're doing around the expenses though are, it should be borne in mind, we've got a really tight focus on managing the cost base and managing headcount coming into the business in particular. The other thing that we've really ramped up from a professional perspective is driving procurement and vendor management and ensuring that has a really tight control. You know, what I'm pleased about is saying we will invest in what I would say good costs that drives the business forward. We'll manage very tightly what I would say is arguably less good costs and try to manage that and drive that down.
Thank you, Paul, and I think we'll bring this to a conclusion. Thank you very much, everybody. Some superb questions. But let me leave you with this final thought. 2022 has been a year of strong delivery right across the Hiscox Group without exception. We've kept our powder dry in our big ticket business for the last couple of years. Now is the time to deploy the capital, and we're doing it. We're not done yet. There will be more growth in both of our big ticket businesses as the year progresses if the current market conditions persist, and we think they'll persist. Our retail business is now very well positioned, and we expect it to grow towards the middle of that 5%-15% range and with significant long-term growth opportunities.
That market opportunity has not changed. It remains a fantastic opportunity, and we're going to go and get it. Thank you very much.