Hello, everyone, and thank you for joining us today for Hiscox IMS Q3 2026 call. My name's Sammy, and I will be coordinating your call today. During the presentation, you can register a question by pressing star followed by one on your telephone keypad. If you change your mind, please press star followed by two on your telephone keypad to remove yourself from the question queue. I will now hand over to your host, Paul Cooper, CFO, to begin. Please go ahead, Paul.
Good morning, and thank you for joining today's call. I will take you through the group's performance for the first nine months of 2026, focusing on premium growth, our change program, claims, and the investment result. After that, we will open the call for questions. Starting with premium. ICWP increased by 9.5% to over $4.4 billion.
This was underpinned by accelerating momentum in all retail markets, while in big ticket, proactive cycle management was offset by innovation, expansion into adjacent specialty classes, and third-party capital support. Now, let's dive into the details, starting with our retail business. Retail ICWP reached $2.25 billion, increasing by 9.1% in constant currency, with double-digit growth in the discrete third quarter, leaving us well-positioned to deliver our upgraded full-year guidance. Growth remained broad-based and volume-led.
U.K. premiums grew by 11.1% in constant currency to GBP 811 million, supported by continued investment in the brand, successful execution of our sector strategy, and increased production from distribution deals. Growth was underpinned by double-digit expansion in direct commercial, where new business increased by around 40% year on year, and APC, which has now delivered double-digit growth for 9 consecutive quarters.
Europe was up by 7.4% in constant currency. The DPD business benefited from improved execution by a dedicated management team. Momentum also built in the broker business, driven by deeper penetration into customer segments, product development, and distribution deals won in recent years. The U.S. increased premiums by 8.4% to $792 million. U.S. DPD expanded its top line by 10.1% to $491 million, with continued improvement in partnerships and double-digit growth in digital direct.
The ease of access to the Hiscox platform, comprehensive small business cover, and continued brand investment are driving increasing volumes through the channel. In U.S. partnerships, we have nearly doubled the number of partners since the business was replatformed in 2023, and production is maturing from many of those added in recent years. Encouragingly, performance has also improved significantly of several of our longest-standing partners, which are now delivering double-digit new business growth.
U.S. broker premiums increased by 5.8% to $300 million, reflecting higher retention, expansion into life sciences and tech startups, and accelerating momentum in allied healthcare following investment in underwriting talent. Turning to London Market. ICWP increased by 9.9%, with premiums now approaching $1.1 billion. The underlying growth, excluding prior period premium adjustments, was 3.9%. Rates declined by 5% across the portfolio during the first 9 months, but remain 59% above 2018 levels.
Proactive cycle management in areas such as major property, upstream energy, and power and renewables reduced premium growth by 9 percentage points. This was more than offset by adjacent classes, the build-out of Hiscox Portfolio Solutions, and selective growth in our existing business. Turning to Re. ICWP increased by 4.5% to GBP 1.1 billion, while net ICWP reduced by 7.5% to GBP 486 million, reflecting softening market rates and active cycle management.
Rates declined by 14% over the first nine months, although the book remains well-priced overall, with rates 55% above 2018. ILS assets under management increased to a record high of GBP 3.1 billion as of the 1st of October, with two-thirds in private ILS and the rest in our cat bond funds. Turning to our change program. We remain on track to deliver a GBP 75 million P&L benefit in 2026, with retail the largest beneficiary.
Most of the benefit is expected to come from group-wide efficiency and synergy initiatives. This includes redesigning operating models, stronger discipline around costs, and optimizing our resource, sourcing, and location strategy. We continue to make good progress with the deployment of technology capabilities across retail.
During the quarter, we started the rollout of our new direct customer portal in the U.S., while we are in the process of launching a new broker portal in Europe and developing a new pricing engine in the U.K. Once these capabilities have been rolled out locally, they will be deployed across retail, helping to improve scalability, enhance efficiency, and support future growth. Turning to claims. Loss experience in the third quarter was within expectations for the group. In big ticket, benign natural catastrophe loss experience in the third quarter more than offset marine losses from the ongoing Middle East conflict.
In retail, loss experience was in line with expectations. Turning to investments. The investment result for the first nine months was GBP 104 million. Rising government bond yields have resulted in a reinvestment yield of 5.1%, up from 4.4% at the half year, and this will support future cash and coupon income.
While the group recognized an unrealized fair value loss of GBP 192 million on bonds and fixed income holdings, these movements are expected to unwind as the bonds mature. Our investment portfolio remains conservatively positioned. Over 90% is held in cash equivalents, or investment-grade fixed income securities, with an average credit rating of A and a duration of two years. Finally, we have refinanced our maturing senior debt by issuing 300 million pounds at a coupon of five and seven-eighths. These notes are not eligible as BSCR capital and will be used for general business purposes.
The group remains well capitalized with high levels of liquidity and strong capital generation, supporting continued investment in profitable growth and shareholder returns. The share buyback is materially advanced, with over 80% completed by the 30th of October. This concludes my remarks, and I will now hand back for questions.
Thank you very much. We'll now begin the Q&A session. To register a question, please press star followed by one on your telephone keypad now. To change your mind, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. Our first question comes from Will Hardcastle from UBS. Will, your line is open. Please go ahead.
Hey there. Will Hardcastle, UBS. Can you talk me through some of those biggest drivers of the retail growth across the geographies? I remember you've said in the past it's quite broad-based as to some of those drivers, and you touched on a couple there, but just really trying to see what's driving the acceleration. Is it perhaps the more partnerships?
Is it the distribution? Any extra help on there would be great. Then really just some verification on the large loss commentary. In aggregate, are we saying that in the big ticket, it's actually still net-net a little bit benign in the quarter? Because you talk about benign nat cat, but then you talk about some of the escalation of those Middle East conflict losses. So I'm just thinking about in aggregate. You mentioned last time about Middle East, there was a large amount of that was IBNR in Q2. I guess, how has that IBNR developed? Thank you.
Great. Thanks, Will. So look, I'll take the second one first. So yeah, overall for the group, the loss experience was within expectations, so better. Then for big ticket, the messaging is really the same. So we've benefited from the benign natural catastrophe loss experience in Q3, and that more than offset the losses that have appeared from the ongoing live event that is the Middle East.
I think from a half-year perspective and going into Q3, you'll know that at the half year, we had a prudent loss estimate, the majority of which was IBNR, I think about three-quarters. At Q3, that Middle East reserve remains unchanged, and indeed, the IBNR component still is a majority. I think for retail, I think there's a number of moving parts. I think at the sort of macro level, there are several tailwinds.
I think the two to point out is new business formation has been very strong. That is especially so in the U.S. and Europe. I think also what we are seeing is increased levels of digital adoption. So our direct book has increased really across U.K., U.S., and EU, and is growing double digit. I think then looking more at the individual markets, really, that growth, as you say, is broad-based, and very much volume-led.
So rates are up 1%, but what you have seen in Q3 is that we have delivered in constant currency growth double digit for retail. So that puts us well on the way to meet our guidance of 9% for the full year, and gives us confidence in that double-digit target for 2028.
I think the drives of that, they largely are a number of different management actions, but I would bucket them up into firstly going deeper in our existing segments and sectors. So you have seen, for example, we are targeting and writing more businesses such as online streamers, podcasters, online tutors. New products such as cyber that we are rolling out, a revamped cyber product that we are rolling out across Europe.
We have distribution deals that we have been doing and really ramping up the volume since 2023. Those are starting to mature, and I think that bodes well for additional momentum going into 2027. Then I think that you have got two other factors. One is technology. We have benefited from improvements in productivity that the technology gives us at the front end. I think, of course, brand and marketing has been helpful. That sort of has contributed to capturing that trend of increased digital adoption. I think those are really the themes, Will, that have been benefiting the U.K., EU, and U.S. to varying degrees.
Super helpful. Thank you.
Our next question comes from Kamran Hossain from JPMorgan. Kamran, your line is open. Please go ahead.
Hi. Good morning. The first question is just around capital management and, I guess, investment returns. Clearly, a bit of accounting noise this year on the investment return, mark-to-market, not a cash issue. When you think about capital returns, do you expect to look through kind of that accounting noise?
Just looking at the statement you made this time last year, at the very end of the statement, you said, you think about capital management on an annual basis. It wasn't there. Is there anything to read into the investment return in that statement? The second question is on retail. Clearly, double digits this quarter is, on a constant FX basis, is very positive.
Is there anything that would maybe dampen my enthusiasm that you could hit double digits next year if you're already kind of doing it in the third quarter now, so a year ahead of schedule? Just interested if there's anything one-off or exceptional in this quarter that would suggest that maybe I shouldn't have double digits in for next year. Thank you.
Great. Thanks, Cam, for that. Look, dealing with the capital question first. Yeah, I mean, I think certainly you've seen the mark-to-market loss. The duration of our bond portfolio is pretty short at two years, and the pull-to-par comes back pretty quickly. So, from a capital perspective, really, that impact is dampened. I think the other thing to consider, and this is true of accounting and capital, is that impact is also dampened by the impact of changes in yields on the discounting of reserves.
We put in a sensitivity in the half year of what you can expect in terms of a change in 100 basis points to sort of help evaluate the impact of that. I think with regards to the annual statement, it's really being clear. We have a capital management framework.
We undertake that on an annual basis once we have got through the reporting period of the full year. Indeed, we will come back as part of the year-end results, and we will go through the usual exercise. The priorities are around deploying capital firstly for profitable growth, maintaining a strong balance sheet, paying a progressive dividend, then evaluating the surplus for returning to shareholders.
You would see from our track record, the past three years, we have announced some fairly decent capital returns in the form of buybacks. I think then turning to retail, I think that if you look at the double-digit growth in Q3, it really is a continuation of the momentum that has been building, I would argue, from those management actions over the past few years that has seen the growth move from 4%, 5%, 6%, and now up to 9.1% at the nine months 2026.
As I said, I think that puts us in good stead for delivering the double-digit guidance in 2028, as we laid out in the Capital Markets Day. In terms of penciling anything in for 2027, we will, of course, come back to you as part of the year-end results and give you in-year guidance for what we expect in that calendar year.
Thanks, Paul.
No one-offs in Q3.
Our next question comes from Ivan Bokhmat from Barclays. Ivan, your line is open. Please go ahead.
Good morning. Thank you very much. I have got two, please. Firstly, on retail, I was just wondering, how do you think about the level of competition in the U.S. business? I think we have been hearing progressively throughout this year from some of your larger and smaller competitors that they increasingly just view the small ticket, the mid-market, as the most attractive, pulling back from large ticket business.
Are you seeing a bit more competition now in the broker business, which, with your numbers, looks better year-on-year, so that there is some acceleration? The second question, just looking into year-end for large ticket business, how should the rate adequacy, is it getting any worse than when we spoke last, perhaps around Monte Carlo? Do you think it is going to be a more competitive renewal compared to what we discussed? Thank you.
Great. Thank you, Ivan, for that question. Retail and competition, I would sort of start by saying, the market is enormous. We laid out at the Capital Markets Day, I think the U.S. sort of market is about something like 30 million customers to go after. That is a growing market. I mentioned that we are seeing good new business formation.
So, it is a growing market, and we have a tiny share of it. I think the other aspect when you have seen others sort of talk about small business, we have got to bear in mind that they are different definitions. We overwhelmingly focus on that small and micro end, where employees are typically five employees or less. That really contrasts with others where we have seen our average premium in the U.S., certainly on the direct side of things in that channel, is about $1,000.
Others, I have seen definitions of average premiums of $20,000, $50,000. So, the size, I think, is very different when people are talking about notionally small business. Nonetheless, if you look at the dynamics, certainly on that sort of the DPD side of the U.S. business, we know that that business is, that market is fragmented, underserved, and as I said, a very big opportunity.
We have spent a long time getting the dynamics right around underwriting brand technology. You will recall that we underwrite automatically 99% of that business in order to make the You have to do that in order to make the economics work. I think that that takes time and effort to get to that capability. I think if you look at the sort of the sub-segments of the U.S., our digital direct business continues to grow double digit.
We are very happy with that. The partners, you can see, is improving momentum. It is good to see that some of our longstanding partners are delivering double-digit growth in Q3. I think where there is more competition is typically in that U.S. broker space. We have invested a lot of time over the past couple of years in really strengthening relationships with our key brokers.
We have invested in automation to improve the auto renewal process, and that has helped in terms of retention. Also, we have got a sort of focus on various customer segments that have helped benefit us in the form of the life sciences tech startups, and the addition of underwriting bench strength has helped in healthcare. But it is certainly the case, I think, that you are seeing U.S. brokers, the more contested part of the U.S. business.
I think then in terms of rate adequacy, it is useful just to, for big ticket, the second question, if you go back to the half year, you will recall that we said that on a prospective basis, the London Market business is rated, 76% of the portfolio is rated adequate or adequate plus for our return targets, and the equivalent number for Re is 83%.
So, the portfolio is well rated. Now, we are going into sort of the final quarter of the year. Obviously, sort of key things that can sort of swing the market would be any sort of sizable nat cat activity or not in Q4. Then sort of we will look forward to the renewals season in due course at 1/1. I guess the point to make is, we are continuing to exercise underwriting discipline, and you have seen in Q3 that we continue to cycle manage.
Excellent.
Our next question comes from Vash Gosalia from Goldman Sachs. Vash, your line is open. Please go ahead.
Hi. Thank you for the opportunity. I have two questions, one on capital. So, sort of just thinking around your capital consumptions. If I look at your 1H slides, you have consumed around 10 points of capital, so let us say roughly $200 million.
But given the sort of change in business mix that you expect, which is growing retail but somewhat declining big ticket lines, especially with the decline in your nat cat exposure, could you give us some color on how do you expect that to develop?
Could that potentially be, let us say, zero for next year, or could we even expect some capital release? That is one. The second one on investments. So, obviously, you have a very conservative portfolio with around 14% invested simply in cash. With the higher rates, can we expect a tactical shift in your investment portfolio just to pick up a little bit on the rate side? Thank you.
Great. Thank you for those questions. From a capital perspective, I think it is important to point out that the group is strong from a capital generation perspective. The relative capital intensities are that Re is the most capital-intensive part of the business, followed by London Market, and then Retail is the least capital-intensive part of the business.
The important point to note around that is, if you look at the drivers, at the half year, you have already seen from a Re business segment that we were pulling down our cat PMLs, so we are reducing our cat exposure. I think if the, looking forward to the rate environment, if it continues as is, I think you can expect us to exercise a similar level of discipline, and act accordingly with reducing the nat cat exposures further.
Obviously, that reduces the capital-intensive part coming from Re. However, what you have also seen is London Market grow. That does require capital. Also what you are seeing is Retail, pleasingly, is moving towards that double-digit growth. So, that will also consume capital. In the round, I think the key message is you have got to take account of mix around those relative capital-intensive parts.
But again, if you look at the capital management framework, it is very much going through those priorities, Vash, to determine how much surplus we have at the end of each reporting period. From an investment perspective, you are right. We have been holding what I view is a higher level of cash. Partly that is to fund dividends and the buyback and the like. You can expect us to reduce the level of cash and accordingly get some yield pick up in terms of the fixed income market for that.
Thank you. I'll just try my luck here. Are you able to give us a relative sort of capital intensity between the three business lines?
No, you've got the dynamic. Re is the highest, London Market, and then Retail.
Perfect. Thank you.
I guess, Vash, the only other point to make is bear in mind that there's strong diversification between all three of them. So mix will determine that level of diversification as well. It's a benefit to the group.
Yeah. Got it. Thank you so much.
Our next question comes from Joseph Theuns from Autonomous. Joseph, your line is open. Please go ahead.
Hi there. Morning. Firstly, I just wanted to ask about how much of the growth, the 13% growth in London Market over the quarter was driven by new business rates in the Middle East. Secondly, I was just hoping for a bit of maybe clarification on a comment you made earlier about the IBNR reserves related to Middle East losses.
You said that it makes up the majority. Is it still around that 75% mark, or has it drifted down close to maybe towards, say, 50%? Just hoping for a bit of clarification on that. Also, if I might ask one more quick question on premium adjustments in London Market. When do you foresee this tailwind tailing off, and will it flow into the first quarter 2027? Thanks for answering my questions.
Great. Thank you for that. Let's pick up the Middle East one first. Yes, as I said, the reserve that we put up at the half year in total remains unchanged at Q3. You are right, the level of IBNR within that has come down. It was 75%, and as you say, it is trending more towards 50%. It is about two-thirds. That is the IBNR question.
Premium adjustments, I think it is important to note that it has been a feature for many years. It is a feature of the Lloyd's market where you have business written through binders that need to be trued up. Just as a reminder of what we said at the half year, we have made the premium adjustments on a prudent basis, and it is just that we will get these year in, year out.
It is just that they have been more sizable in 2026, and therefore worth calling them out separately. I think the last part, it is useful just to put the 13% in context, just so that people can orientate. We said that the underlying growth is 3.9%. We have exercised cycle management where we have reduced the book by 9 percentage points, and then the growth, as you have highlighted, is 13% in terms of new business. Some of that has come from the Middle East, but it is pretty modest.
I would say the core drivers of that 13% growth has been growth in terms of the selective opportunities in the existing portfolio. That would include the Middle East, but also GL and flood. We have been seeing opportunities in adjacencies where we are utilizing our existing expertise and technology to innovate, to access business such as middle market property, downstream energy, financial institutions, credit, and political risks.
Also, we have been really focused on the structural change in distribution and then building out our capabilities in HPS to give it added focus. That is the Hiscox Portfolio Solutions. Those are the core elements of growth, and you can see, therefore, that the Middle East pickup is pretty modest. I would say that we are supporting our customers in the Middle East, we are open for business, and charging a price that is commensurate with the risk.
Great. Thanks for answering my questions.
Our next question comes from Shanti Kang from Bank of America. Shanti, your line is open. Please go ahead.
Hi, Shanti.
Oh, sorry, can you hear me?
We can now. Sorry, I couldn't hear you before. Can now.
All good. I just had a couple of questions. The first one was just on the general market and casualty. I think in 3Q, a lot of the Bermuda and U.S. players have seen a lot of adverse development, so adding to U.S. casualty reserves. Maybe you can just talk us through how you get comfortable on your existing casualty tail risk in the book. Then today, I noticed that you mentioned some selective opportunities to capture in general liability. Could you characterize that a little bit and maybe talk about how conservatively that might be booked? Then my second question-
Sorry, what was your second question?
Second question was just on the selective opportunities being captured in general liability-
Yeah
That you mentioned in the press release. Maybe you could just characterize that a little bit. Maybe that is being booked very conservatively. That would be helpful. Then, my last question is just on the broader London Market. If you guys have a view on the new Cortina structure that is being introduced from the Aon-Blackstone agreement, is that an area where HPS could benefit, for example? Or if you have any thoughts on that entering the Lloyd's market would be great. Thank you.
Yeah, talking to casualty, I would say that we have been very focused, a disciplined underwriter. How do we get comfortable? You will see that we are very selective in terms of that. We have been writing casualty for years. The GL component in the London Market business is a relatively small proportion of the overall portfolio. Nonetheless, you will see, I guess, two things. One is, from the reserves perspective, we are a conservative reserver.
I have mentioned that. If you look at the percentile strength at the half year, we are at 86%. Indeed, we have had 19 years from an unbroken track record of positive reserve development. I think that bears out the conservatism in our loss picks. I think the other aspect is you will see that from the 2019 and prior, we have got a number of loss portfolio transfers in place with high limits on them.
That is sort of the GL aspect where we are selective. As I said, it is a small proportion of the overall London Market portfolio, but these are small lines. We have been very mindful of managing down our sort of line management. Cortina, I think it is just another feature of how the market is evolving, matching risk to capital. It is a supply-demand dynamic. If you look at our sort of Re business, I think we have been very well-placed and partner very well with third-party capital. It has led us to three years, or the past three years of generating fee income for that segment in excess of GBP 100 million per annum.
Thanks very much.
As a reminder, to ask a question, please press star followed by 1 on your telephone keypad. Our next question comes from Abid Hussain from Panmure. Abid, your line is open. Please go ahead.
Hi. Morning, all. I've got two more questions left, if I can, please. They're both on retail. The first one is just on the growth. It's good to see that growth come through, but I wanted to change the focus onto margins and just wondered if you could share the directional travel on margins. Perhaps if you could talk to the claims inflation that you're seeing, any early benefit of the change program, and the impact on margins on the near term and perhaps on the medium term. That's the first question. The second one was on retail distribution. Correct me if I'm wrong, I think you may have started to advertise on LLMs.
If SMEs are starting to buy through AI assistants or bots, just wondering if that strengthens your case, your direct brand proposition, or is there perhaps a risk you become one of many on the comparison site? Thank you.
Yeah. Thanks. Great questions. From a retail margin perspective, I think, I'd sort of point you back to, we've got our combined ratio guidance for retail remains 89-94, and you'll recall at the Capital Markets Day, we said that you should expect us to travel towards the bottom of that range as the change program is implemented.
You can see that the change program is very much on track. We're on course to deliver the $75 million for this year and the $200 million in 2028. Of course, if you look at the sort of combined ratio trajectory from an actual standpoint, I think it's been improving over the course of the like two and a half years. We are seeing an improvement, and that is including the sort of growth uptick that you've seen.
I would expect that 89-94 guidance to remain and for us to be very focused on meeting it. I think from a sort of changes in distribution and AI and LLMs, we see that as a tailwind. We think that we are very well placed given our extensive presence in the sort of digital space. I mentioned earlier that we have around $900 million of premium in the retail space that we sell through the digital channels. That's 900,000 customers. We have a strong brand. We have good third-party testimony in the form of Feefo, and other aspects around our claims NPS scores are very strong, I would argue, pretty market-leading.
That sort of combination of presence, brand strength, and it is interesting that we ran an exercise in Q1 where we looked at both sentiment and presence on LLMs, and in the U.K., we were number one. This is for small business insurance. For Germany, as a proxy for Europe, we were number one. And in the U.S., we were number three, but I would kind of caveat that with the point I made earlier around definitions of small business in the U.S. can differ.
But nonetheless, you will see that from a sentiment and a sort of profile, we are certainly up there, if not leading. I think, and how you can see that play out is, one, is that we have started to advertise on LLMs. Albeit it is at a low base, but our sales from the LLM channel is up 3x. I think you can see that we believe that this is a tailwind, and our specialist focus on products means that we do not compete on price.
There is a lot of other things that the LLMs are going to pick up rather than a pure, than it forming a sort of price comparison sort of nature. I think the LLMs offer a more rounded search experience for, let us say, sort of things other than price, coverage, quality, brand, and a number of other things. Customer servicing claims are some that I would mention. We think we are well set.
That is very helpful. Thank you.
Our next question is a follow-up question from Will Hardcastle from UBS. Will, please go ahead.
Hey. Sorry, it's a quick one, I think. It might also embarrass me. You discussed the debt action that you've taken. I guess just a simple question, I think. Why not sub-debt, and why not have that as permissible? What was the logic? Was the yield pick-up-
Yeah
too much to go sub-debt?
Yeah, it was very much a refinance of our existing senior bond. The senior bond, when the refinance was oversubscribed, which is pleasant, and we upsized it to take advantage of the interest in the debt. Essentially, we didn't want to. There's no need for the additional capital from a solvency perspective. You'll see that we were at around 210% on a pro forma basis at the half year.
As I said earlier, the business remains highly capital generative. This is really just to take advantage of a bit of additional liquidity at, essentially, a sort of almost neutral position given the reduction in coupon from 6% to 5 and 7/8.
Thanks.
We currently have no further questions, so I'd like to hand back to Paul for some closing remarks.
Yeah. Great. Thanks for listening, and thanks for your questions today, and see you at the full-year results. Thank you.
This concludes today's call. We thank everyone for joining. You may now disconnect your lines.