Good morning. Thank you for attending today's Hiscox quarter one IMS conference call. My name is Sarah, and I'll be your moderator today. All lines will be muted during the presentation portion of the call with opportunity for questions and answers at the end. If you'd like to ask a question, press star one on your telephone keypad. I would like to pass the conference over to our host, Paul Cooper, Chief Financial Officer. Please go ahead.
Thank you. Good morning and thank you for joining today's call. As usual, I will take you through the group's performance for the first quarter, focusing on premium growth, claims, the investment result in our change program before handing back for questions. Starting with growth. For the first three months, ICWP increased by 10.2% to over $ 1.7 billion. Growth was driven by accelerating momentum in all retail markets and disciplined growth in big ticket. Hiscox Retail continues to be the fastest-growing segment. This reflects a structural opportunity and the benefit from broad-based management actions. In big ticket, we are proactively managing the softening cycle while achieving growth through new business initiatives and in selecting existing lines where conditions are more favorable. Diving into a bit more detail, starting with retail.
Premiums grew 8% in constant currency, in line with full year guidance as growth accelerated in all markets. The wide range of growth initiatives across each business over recent years drove a step up in momentum from 6.3% at full year 2025. Growth was broad-based and volume-led, with modest rate increases of 2% in the quarter. The U.K. business grew 8.9% in constant currency. Art and private client delivered double-digit growth for the seventh consecutive quarter. U.K. small commercial continued to execute its sector strategy, deepening specialisms in areas such as independent retail, sport and leisure, and health, beauty, and wellbeing. Europe grew 6.8% in constant currency with sustained strong growth in our two largest markets, Germany and France.
We continue to build production from distribution deals signed in recent periods and have launched several new deals in the quarter. Our U.S. business saw the strongest improvement as ICWP increased by 8.5% with momentum across both digital and broker channels. DPD delivered 9.6% growth, supported by continued double-digit growth in digital direct and improving production in partnerships. Broker growth accelerated to 6.7%, driven by stronger engagement, improved workflows and new customer segments such as expansion into life sciences and tech startups. Turning now to big ticket. Hiscox London Market ICWP increased by 4%. Microcycles persist and more lines are now experiencing rate pressure. Major property, commercial property and household all saw double-digit rate reductions in the quarter.
While the market continues to soften overall with average rate down 4%, we did see rate tailwinds in general liability and alternative risk. Given current market conditions, we are highly selective where we grow, both in terms of our existing business and new initiatives. With regards to the former, we are selectively growing general liability as rates increase, and we find attractive opportunities, including from last year's launch of financial institutions. As for growth initiatives, momentum continues to build from our middle market entry last year, and in the quarter, we launched Hiscox Portfolio Solutions. This new division brings together into a center of excellence our existing alternative risk business with new lines. Using a range of strategies and working with a selection of high-quality partners, we will combine our expertise to broaden access to distribution and further diversify our portfolio.
Turning to Hiscox Re, ICWP increased by 7.1% to $ 527 million, driven by new third-party capital inflows. Net ICWP reduced by 5.6%, reflecting lower rates in property catastrophe, partially offset by growth in pro rata and specialty lines. Rates declined by 13% in the quarter, with a further slight decline at the April renewals and some modest softening of terms and conditions. Nonetheless, the portfolio remains adequately rated overall following cumulative increases of 65% since 2018. ILS assets under management increased to $2.4 billion at the April 1st, reflecting approximately $1 billion of capital raised, much of this into our cat bond fund. As our cat bond fund grows, you should have in mind this does not impact written premium.
While this provides high-quality, risk-free fee income, the fees are at a lower level than private ILS funds. Looking ahead to our half year fee income, I would remind you 2025 was impacted by the California wildfires. As such, H1 2024 is a better reference point at this stage given the recent inflow of new funds and their different structures. Turning to the loss environment. Loss experience in the quarter was within expectations as a benign natural catastrophe environment offset the estimated impact of the Middle East conflict in the period. As a leading specialty insurer, naturally, we have exposure to the conflict in the Middle East, both through our London market and Hiscox Re portfolios in lines such as war, terror and political violence, kidnap and ransom, and marine war.
While this remains an ongoing event, to date, we have seen a small number of claims, primarily in London markets K&R and WTPV books, and to a lesser extent in marine war lines. The group uses extensive reinsurance for these lines of business. We continue to support our clients, and the new business we are writing in the region is priced appropriately for the elevated level of risk. We have also launched a sidecar to supplement our balance sheet and provide increased capacity, which will generate additional fee income. Turning to investments. The investment result was $ 34.1 million, representing a year-to-date return of 0.4%. This includes $ 69.6 million of unrealized fair value losses on fixed income securities. These are excluded from adjusted operating profit and will also unwind as the bonds mature.
You should also bear in mind that there is a partial offset flowing through the IFI. As a reminder, the sensitivities disclosed at full year were for a 100 basis points increase in interest rates, the impact would be an investment loss of $ 164 million, partially offset by $ 75 million of income through the IFI. Group invested assets were $ 9.3 billion at the March 31st, with a reinvestment yield of 4.4% and a duration of two years. 94% of the portfolio is in fixed income and cash, which is conservatively positioned with an average credit rating of A. Turning to our change program. Our progress continues at pace.
Since the start of the year, we have transferred the first finance processes to our outsourced partner and transitioned to a single strategic IT provider for our data center and cloud support services. We are continuing to deploy AI across the business. In the first quarter, we rolled out a group-wide AI literacy program. In the U.S., an AI agent is now monitoring all inbound calls into our call center, supporting improvements in quota bind and retention. The AI voice agent is delivering strong customer satisfaction at a 30% reduction in interactions requiring an advisor. We remain on track to deliver the $75 million P&L benefit in 2026, a significant step towards the target of $ 200 million of annual P&L benefit from 2028 onwards. Finally, concerning capital return. The $ 300 million buyback is progressing well.
As at market close yesterday, the group had completed 18% of the buyback, repurchasing 2.6 million shares. Looking forward, with our sharp focus on profitable growth and good progress on the change program, the outlook for 2026 is positive. This concludes my remarks, and I'll now hand back for questions.
Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. To remove your question, please press star followed by two. Again, to ask a question, press star one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking a question. We will pause her briefly as questions are registered. Our first question is from Will Hardcastle with UBS. You may ask your question.
Morning, everyone. First one, just thinking about that Retail growth. You know, it's coming in at 8%. It's the target for the full year. I mean, I actually had it sort of growing into that momentum as the year went on, coming off where you're exiting second half. I guess, were you expecting that or is this you were expecting at 8% already by Q1? If it's not aligned, where in particular is perhaps running ahead? The second one is just thinking about the Middle East conflict losses. You know, we've had a few European reinsurers report, it's difficult for us to know whether these are, you know, extra prudency reserves or the losses are actually materializing and coming in.
I guess it's just sort of trying to get a grip of this coupled with a benign cat. Is that just running at exactly where you'd expect it broadly? I mean, broadly, not exactly. Is there any potential for prudency here? Thank you.
Thanks, Will . Look, from a retail perspective, I'm pleased with the start of the year. I think as you've seen from the statement that this has been, you know, really sort of generated from each of the markets. We're seeing good momentum in the U.S., Europe and the U.K., all from the management actions that we've undertaken over the past several years. I think what is especially pleasing is that this premium, the growth in retail. At this stage of the cycle, the retail business really is the growth engine. What you're seeing is it's volume-led, you know, it's not rate dependent. This is, as I said, high quality, you know, very much from a volume basis.
I think sort of for the Middle East, I think, you know, just to put this in context, we as you've highlighted, we had a benign, nat cat Q1, and we released the cat load for that. We've established an offset, that sort of cat load release with a reserve for the Middle East losses. Actual notifications are pretty limited at this stage. We've had maybe one in Re and, you know, a handful in terms of the London Market aspect. Interestingly, around sort of that component, we did actually run a scenario last year after the 12-days war. Really the sort of how the events are unfolding today are pretty consistent with that scenario that we modeled. There haven't so far been any surprises coming out of that.
I think what I would say though is, you know, we're seeing that, you know, events are unfolding and changing on a day by day, and that the longer that this goes on, I think the more you're going to see the increased likelihood that that loss is going to develop for the market. Now, what I would say is, our underwriters are market leading in those lines that we have exposure on. They continue to monitor the exposures and how the event is unfolding closely. I think that, you know, the important aspect is we continue to support our clients. We are open for business. We are quoting in those markets.
I would say that where the business that we are originating is greater than our own appetite for our own balance sheet, we've launched that sidecar that I mentioned that enables us to essentially write the business on behalf of third parties and then use their balance sheet, and in return derive some fee income for that.
That's great. Thanks, Paul. Did you say what the size of that sidecar was or not?
No, you know, I think it's a useful addition. Look, I think if you think about the market for that premium in aggregate is pretty small. You shouldn't expect, you know, our top line to increase by hundreds of millions. This is more like a tens of millions addition to the top line at sort of full power, let's say.
That's great. Thank you.
Thank you. Our next question is from Kamran Hossain with JP Morgan. Please go ahead.
Hi. Morning. Thanks for taking my questions. The first question is just around kind of rate adequacy in London Market and reinsurance. I recall Joe had a really good slide at the full year results talking about rate adequacy, you know, across the wholesale side of the business. Can you maybe kind of talk about how much of that has shifted in the first course of the year? You know, there have been some fairly negative headlines coming out from the U.S. in particular. The second question is on mix effects. It sounds like in London Market there's a bit of a mix change, property less property, a little bit more kind of better rated liability business. In reinsurance, again, kind of property coming down and some other classes coming up.
Should we expect kind of substantial mix effects, in maybe kind of, you know, margins, in 2026, you know, as a result of these changes? Thanks.
Thanks, Kam. I mean, the answer to both of those questions really resides in strong cycle management, and that's really been the focus of Hiscox for years. I mean, if you look at, we've been talking about micro cycles and the fact that different lines are behaving differently, you know, across several of these calendar years. I mean, I think it's useful just to sort of put this in context. You're right. At the year-end results, Joe put out a slide that is forward-looking. It had, you know, rates down at 4% for London Market. The rates at Q1 are down 4%, pretty much in line. The rates were down around mid-teens at 1/1.
Again, you know, the rates for sort of 1/1/4 were around that area, so pretty consistent. Importantly, the level of rate adequacy has been, for London Market, 75% is rated adequate or adequate plus, and Re is 83% on an equivalent basis. You can see that although rates are softening in certain lines of business and more generally, I think the returns on offer remain attractive and the portfolio is adequately rated in aggregate from a sort of London Market and Re perspective. I think nonetheless, you know, we are exhibiting strong cycle management. We are walking away from business. We did highlight that major property is down mid-teens. If you look at, you know, the sort of mix, we are still growing in property in London Market. We are finding attractive opportunities.
One of them has been mid-market property, where we have used innovation and our ability to use AI to extract data much more efficiently in order to grow and target, say, the mid-market property space. I'd say more generally, sort of the mix effect aspect is really that is an ongoing basis. We are constantly monitoring and evaluating the London Market portfolio and, you know, growing in areas that are attractive, finding new opportunities to grow, but pulling back in areas where simply and walking away from business that is inadequately priced. I think that in turn, you know, I think the sort of proof of all of that and the outcome from a cycle management perspective is those six consecutive years of having the combined ratio in the 80s.
Well, thanks very much, Paul.
Thank you. Our next question is from Ivan Bokhmat with Barclays. You may ask your question.
Hi. Good morning. Thank you very much. My first question would be on retail pricing. I mean, you've reported a 2% increase in rates. I was just wondering if you could give a little bit more color about the regional differences, where it may be running ahead of that level. Are there any segments where pricing is softening in retail? How should we think about this going forward? Particularly as you've highlighted, this remains a very attractive cyclical segment. Maybe your competitors are trying to accelerate growth there. My second question, I think it's a follow-up actually on Kamran's question. In the past, sometimes you would give the indication of the, you know, go forward combined ratios you may achieve with new underwriting for the large ticket businesses.
I think, last time we were talking about that, you were suggesting that low 70s for reinsurance and mid-80s for London Market could have been that level. Given the rate moves and some of that, cycle management, are we now to, let's say, the low 90s for London Market and mid-80s for reinsurance, or is that a wrong way to think about it? Thank you.
Yeah. Thank you. On retail and just the rates, you know, you can see, I think, in contrast to, say, the big ticket businesses that, you know, what's pleasing is the retail rates are in positive territory at +2%. You know, I think, what I'd sort of say is that if you look at the business that we write, the large element is very much focused on that small and micro end, and it's just not as rate dependent as, let's say, the bigger ticket business that is more cyclical. I think in terms of the go forward course, you know, I think we're very pleased with the track record of both Re and London Market. I'm not gonna put out a sort of guide of what you should expect for the full year for the combined ratios in 2026.
Sorry. Can I go back to the retail pricing? Looking at the U.K. versus Europe versus U.S., maybe you could highlight where the price momentum has been accelerating, decelerating. Where is it higher and lower?
Yeah, look, I mean, if you look at the retail rates that we've published, for each of the years, they're pretty consistent. This business just isn't as, sort of cyclical as the big ticket.
Okay. It's just inflation passed through basically to customers. Thank you.
Well, no, I mean, if you look at the I think, you know, we will write on a portfolio basis. I think from a sort of rating perspective, just look at our guidance that we've put out from a combined ratio. We've targeted 89%-94%, what we've said is you can expect those margins to increase over time, certainly as that change program delivers.
Appreciate it, Paul. Thanks.
Thank you. Our next question is from Ben Cohen with RBC. You may ask your question.
Thank you. Good morning, everyone. I had two questions, please. Firstly, could I just ask on the retail side about the pipeline for new distribution agreements? I think you referenced some bank assurance in Europe, some new partners in the U.S. How do you see that building over the next, kind of 12 months? The second question was just sort of broadly across the whole business. How are your views on inflation changing kind of post the Iran war? Could you talk through any sort of changes or initiatives you have to monitor those impacts? Thank you.
Thanks, Ben. In terms of the retail pipeline, I would say that it's healthy and continues to be so, and it helps drive the momentum of the overall retail business in each of those markets. I think the interesting aspect and what we've found is that it takes, you know, a while, let's say 18 months to two years, for these distribution arrangements to come on stream and start getting to a decent amount of production. If you take the U.K., for example, in 2024 and 2025, we generated an issue and entered into about 10 deals per annum. Those are obviously starting to come on stream. That helps 2025, 2026 and beyond. I think that that's true of also the case in Europe.
The bancassurance deal that we referenced was sort of the tail end of 2024, early 2025. What we're seeing is a helpful uptick in the production from that arrangement. I think similarly, if you look across to the U.S., you know, we are seeing improved momentum in the sort of U.S. DPD partnership space. We continue to add partners at the same time. We put on six in Q1. You know, some of those will hopefully turn out to be, let's say, winners and strong performers. Some of them may, you know, may not be as productive as we had hoped. In aggregate, I think you can see across each of those markets, the distribution deals, we're broadly winning in that space.
I think that is, you know, really a testament to, one, the specialty products that we underwrite, the brands that we've been reinvesting in, and the efforts to really engage distribution with the business. That's sort of the first aspect. In terms of inflation, I mean, I think that this is something that we manage and have been managing for decades. We systematically, on the underwriting front, reparametrize the entire portfolio on a quarterly basis. Really, inflation assumptions are built into our pricing as a consequence of that on a very regular basis. In times of elevated inflation, and probably 2022 is a good example, whereby for some of the assumptions on pricing, we doubled our assumptions.
In certain lines, we then doubled them again maybe three months, six months after, given that certain lines were more prone on a forward-looking basis, I hasten to add, to potential spikes in inflation. I think on the sort of asset side, you know, clearly the fixed income is short duration. If central banks hike their rates, then clearly you get a short-term mark-to-market effect. Essentially, you're clipping coupon on a prospective basis at a higher level. You know, at two-year duration, the portfolio rolls over pretty quickly.
Great. Thank you very much.
Thank you. Our next question is from Chris Hartwell with Autonomous. Please go ahead.
Good morning, Paul. Quick question?
Thank you.
First of all on U.S. Retail. I mean, it's good momentum that we're seeing still coming through there. Equally, I think it's probably fair to say that some of your U.S. competitors are or larger U.S. competitors are growing at a very similar clip. I was wondering, I guess, first of all, do you think you're taking market share within the U.S. business? I'm specifically talking about obviously small, the small commercial. I guess why not grow faster, given, you know, how the environment is currently? Then the second question really is on Reinsurance and the ILS growth. I mean, there's about $1 billion of new capacity that you've won in Q1.
I was wondering, I mean, that's a much faster, sort of rate of growth, than we saw over the last few years, and obviously, that's quite a lot of market share we've been seeing. I was wondering what the secret sauce is there. What are you doing differently this year than before? Thank you.
Sorry, Chris, can you The second question was that sort of London Market or Re? Sorry, I missed that component.
Just on I think in the release, I think you speak more on reinsurance for the alternative-
Yeah. Okay.
sort of capital growth, but.
Perfect. Okay. Thank you. All right. Look, in terms of U.S. Retail, look, we are happy with the momentum that's bringing. It's across each of digital direct U.S. partnerships and the U.S. brokers. You know, if you look at the digital direct space, you know, the overall growth of that is very pleasing. It's double digit. In fact, for March, we had our best month ever in that space. I'm very happy with the progress that's delivering. Partnerships, there has been an uptick and more momentum is continuing. In terms of U.S. broker, you know, what we've seen is the uptick and the momentum has increased for each of the last two quarters.
I think what you can see, and I think what's important is look at the progress that the U.S. has made, and it's been very pleasing for me. You know, just two years ago, three years ago, that rate of growth in the U.S. was 1%. It's gone from 1% - 2.5% - 4.4%, and now 8.5% for Q1. I think that trend is very pleasing for me. I think in terms of the overall opportunity, it remains very significant. I think that if you look at the sort of CMD numbers we put out, I think that this is sort of in excess of an $80 billion market. The opportunity remains significant.
I'm very pleased with the momentum that we have in that U.S. space, and it's coming from all channels. I think in Re ILS, so the second question, really this is sort of the new AUM that's coming in is really, I think, testament to the quality of the Re business and the Re franchise. You know, we can offer to our clients from a third-party capital perspective, the ability to write through multiple different avenues, be it a dedicated syndicate in Lloyd's, through sidecars, through cat bond funds, through ILS, through traditional reinsurance.
I think both the flexibility and range that we have, combined with the track record whereby we've delivered on our own balance sheet, a combined ratio in the 60s for four out of five years, really shows, you know, the ability to attract and generate strong returns for our third-party capital providers. At the same time, generate good fees from a fee income perspective for ourselves. In each of the three years, we've generated in excess of $ 100 million per annum for those fees. I think it really shows the strength of that business overall.
That's very clear. Thank you, Paul.
Thank you. Our next question is from Shanti Kang with Bank of America. Please go ahead.
Hi. Morning. Thanks for taking my question, or questions. I have two. The first one is just on the T&Cs. You guys flagged that those modestly softened, I'm just curious to hear a bit more about the areas that were impacted. If that's mainly like attachment points or wordings or, you know, ad covers. Any color on that would be helpful. Just on the U.S. broker recovery, that seemed to accelerate pretty sharply in Q1 this year, which is better than I thought. Is there anything that sort of unlocked that sharp improvement, how should we expect that growth rate into the rest of the year? Will it kind of steady off, do you expect that to keep growing at a similar rate? Thank you.
Yeah. Okay. Thanks, Shanti. From a reinsurance perspective, I mean, I'd say that the feature of the market in 1/1 and 1/4 has been that really the softening in that environment for the market has been more price-led than terms and conditions. I think terms and conditions, as we've mentioned, have broadly held up. There has been some softening around the edges, maybe around, you know, inclusion of perils and broadening that out slightly, along with hours clauses. Again, you know, subject to a bit of softening in that space. I would say that in terms of attachment points, though, generally those have remained pretty stable, pretty steady. More price-led than, I think, T's and C's. We haven't seen a meaningful introduction of more sort of aggregate covers for our own portfolio.
I think in terms of the U.S. broker growth, it's I'd sort of say, and repeat the comments I made in an earlier question that really that U.S. broker growth took off in Q4 and has been pretty consistent or pretty similar to in Q1 as well. Happy with that. I think it's come about, you know, you've seen a new CEO in the U.S. in the form of Mary, who's now well into her stride. I think she's been here 18 months to two years. I think from that perspective, you know, there's been efforts to really engage with brokers, streamline our internal workflows so that we can be more responsive and faster and introduce a level of automation, for example, in areas like auto renewals.
Also, you'll know that we started this in the U.K., but are rolling it out across the retail businesses, including the U.S. and U.S. broker, the AI triage submission process. Those aspects, along with targeting new customer segments like life sciences and tech startups, have really driven that momentum in the latter end of last year and into this year and, you know, remain optimistic for the rest of the year.
Cool. Thank you.
Again, if you would like to ask a question, please press star followed by one on your telephone keypad. Our next question is from Abid Hussain with Panmure Liberum. You may ask your question.
Hi there. Thanks for taking my questions. I've got still a couple of questions if I can. The first one is on the capital position. Just wondering, given the exposure is clearly now shrinking across the property cat lines, does that mean you don't need to hold on to as much of your capital base? That's the first question. The second one is on AI. Just wondering if you could talk to any early learnings from the implementation of AI across the business. Good to see some of the use cases that you highlighted in the release this morning. Just sort of I'm just wondering, associated with that, does that rollout of AI, does that generate any further upside to the $ 200 million change program or was that largely baked in? Thank you.
Great. Thanks, Abid. From a capital perspective, what we said is we're not growing our CapEx. We're not meaningfully shrinking it, but it's reasonably stable given the attractive returns that remain on offer in that portfolio. I think the other aspect is clearly, it's nowhere near as capital-intensive, but we are obviously growing the retail business, which is half the book, at a decent rate. I would say the capital generation of the group remains strong and has been, as demonstrated over the past, say, three years, for example. I think in AI, I think the starting point is we rolled out, and as we've put in the statement, a group-wide literacy program.
Really what this is intended to do is drive up the familiarity and ensure that people's day-to-day usage of AI makes them more efficient overall and more familiar. It's quite interesting that post that rollout, for example, the usage of Copilot increased from something like single digits into the sort of 40%, 50% in the subsequent two weeks, to give an indication. I think in terms of, like, real-life examples of where we're deploying it, I think we've trailed well the successes we've had in sabotage and terrorism in the augmented underwriting space using AI. I think we continue to expand that across the London Market environment so that we can extract data using AI far more effectively and far more efficiently.
The specific cases that we have used within the retail space and in the U.S. in particular are, one, in the call center, we've got an AI agent monitoring all calls and effectively feeding back into the ops business real-time, sort of observations around using a dashboard about how the processes and the calls can be improved. It's very early signs, but improvements around retention and customer satisfaction and conversion. Very early days, but there's a, there's a sense of optimism there. I think we also have an AI agent from a voice perspective that is managing the, either the sales journey or the claims journey from a first notice of loss perspective. The signs are encouraging in that there's something like a 30% reduction on a advisor, i.e. human interactions there.
The productivity and efficiency and customer service benefits are clear from that perspective, but again, early days. I think from a sort of, you know, the $ 200 million change program, you know, we'd already started that. We announced it as part of the CMD. I think the AI developments are improving and improving at a rate of knots. I think what this does is, at the time, we hadn't baked in significant benefits from AI, given the relative infancy of that technology. What we are seeing, and I think where it helps, is cement our confidence in the delivery of that $ 200 million benefit to the P&L in 2028.
Great. Thank you.
Thank you. There are no questions waiting at this time. I'll turn the conference back over to Paul Cooper for closing remarks.
Great. Well, look, thank you for your questions. Thanks for listening, and we will see you with the fuller update at the half year. Thank you.
Thank you. That concludes Hiscox quarter one IMS conference call. Thank you for your participation. You may now disconnect your line.