Hiscox Aktie

Good morning. Thank you for attending today's Hiscox quarter 1 IMS conference call. My name is Sarah, and I'll be your moderator today. [Operator Instructions]

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 and our change program before handing back for questions.

Starting with growth. For the first 3 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 the 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, sports and leisure and health, beauty and well-being.

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 start-ups.

Turning now to big-ticket. Hiscox London Market ICWP increased by 4%. Micro cycles persist and more lines are now experiencing rate pressure. Major property, commercial property and household all saw double-digit rate reductions in the quarter. And 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 for 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 1st of April, reflecting approximately $1 billion of capital raised, much of this into our cat bond fund. And as our cat bond fund grows, you should have in mind this does not impact written premium. And 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. And 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 Market's 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 IFIE.

As a reminder, the sensitivities disclosed at full year were, for 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 IFIE.

Group invested assets were $9.3 billion at the 31st of March with a reinvestment yield of 4.4% and a duration of 2 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. In addition, 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 quote to bind and retention. Also, the AI voice agent is delivering strong customer satisfaction and a 30% reduction in interactions requiring an adviser. 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.

And finally, concerning capital return. The $300 million buyback is progressing well. As at market close yesterday, the group has 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.

[Operator Instructions] Our first question is from Will Hardcastle with UBS.

First one, just thinking about that Retail growth. 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 you were expecting 8% already by Q1? And if it's not aligned, where in particular it's perhaps running ahead?

And the second one is just thinking about the Middle East conflict losses. We've had a few European reinsurers report, and it's difficult for us to know whether these are 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? Or is there any potential for prudency here?

Thanks, Will. So look, from a Retail perspective, I'm pleased with the start of the year and, I think, as you've seen from the statement, that this has been really sort of generated from each of the markets. So 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. So what you've seen is it's volume-led. It's not rate dependent. And this is, as I said, high quality, so very much from a volume basis.

I think sort of for the Middle East, I think just to put this in context. As you've highlighted, we had a benign nat cat Q1 and we released the cat load for that. And we've established an offset, that sort of cat load release with a reserve for the Middle East losses. Now actual notifications are pretty limited at this stage. We've had maybe one in Re and a handful in terms of the London Market aspect.

Now interestingly, around sort of that component, we did actually run a scenario last year after the 12 days war, and really, sort of how the events are unfolding today are pretty consistent with that scenario that we modeled. So there haven't so far been any surprises coming out of that. I think what I would say though is -- and we're seeing that events are unfolding and changing on a day-by-day, and that the longer that this goes on, I think 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, and they continue to monitor the exposures and how the event is unfolding closely. And I think that the important aspect is we continue to support our clients. So we are open for business. We are quoting in those markets. And 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 use their balance sheet and, in return, derive some fee income for that.

That's great, Paul. Did you say what the size of that sidecar was or not?

No, but I think it's a useful addition. So look, I think if you think about the market for that premium in aggregate is pretty small. So you shouldn't expect 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.

Our next question is from Kamran Hossain with JPMorgan.

The first question is just around kind of rate adequacy in London Market and reinsurance. I recall Jo had a really good slide at the full year results talking about rate adequacy across the wholesale side of the business. Can you maybe kind of talk about how much of that has shifted in the first quarter of the year? There have been some fairly negative headlines coming out from the U.S. in particular.

The second question is on mix effects. So it sounds like in London Market, there's a bit of a mix change, less property, a little bit more kind of better-rated liability business, and then reinsurance, again, kind of property coming down and some other classes coming up. Should we expect kind of substantial mix effects maybe kind of in margins in '26 as a result of these changes?

Yes. Thanks, Kam. So I think the answer to both of those questions really resides in strong cycle management, and that's really been the focus of Hiscox for years. We've been talking about micro cycles and the fact that different lines are behaving differently across several of these calendar years.

So yes, I think it's useful just to sort of put this in context. So you're right. At the year-end results, Jo put out a slide that is forward-looking and it had rates down at 4% for London Market. And the rates at Q1 are down 4%, so pretty much in line. And Re, the rates were down around mid-teens at 1/1. And again, the rates for sort of 1/1, 1/4 are around that area. So pretty consistent. But 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.

So 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, we are exhibiting strong cycle management. We are walking away from business. We did highlight that major property is down mid-teens.

But if you look at 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, that is on an ongoing basis. We are constantly monitoring and evaluating the London Market portfolio and growing in areas that are attractive, finding new opportunities to grow but, pulling back in areas and walking away from business that is inadequately priced. And I think that, in turn, I think the sort of proof of all of that and the outcome from a cycle management perspective is those 6 consecutive years of having a combined ratio in the 80s.

Our next question is from Ivan Bokhmat with Barclays.

My first question would be on Retail pricing. I mean, you've reported a 2% increase in rate. But I was just wondering if you could give a little color about the regional differences where it may be running ahead of that level. Are there any segments where pricing is softening in Retail? And how should we think about this going forward? Particularly as you've highlighted, this remains a very attractive cyclical segment and maybe some of your competitors are trying to accelerate growth there.

And my second question, I think it's a follow-up actually on Kamran's question. But in the past, sometimes you would give the indication of the go-forward combined ratios you may achieve with new underwriting for the large ticket businesses. And 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?

Yes. Thank you. So look, on Retail and just the rates. You can, I think, in contrast see the big-ticket business and what's pleasing is the retail rates in positive territory at plus 2%. 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 smaller 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, I think we're very pleased with the track record of both Re and London Market, but I'm not going to 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? Just 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.

Yes. Look, I think if you look at the Retail rates that we published for each of the years, they're pretty consistent. This business just isn't as sort of cyclical as a big-ticket.

Okay. So it's just inflation pass-through basically to customers.

Well, no. I think we will write on a portfolio basis, I think, from a sort of rating perspective. Just look at our guidance that we put out from a combined ratio. We've targeted 89% to 94%. And what we've said is you can expect those margins to increase over time certainly as that change program delivers.

Our next question is from Ben Cohen with RBC.

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 bancassurance in Europe, some new partners in the U.S. How do you see that building over the next kind of 12 months?

And 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? And could you talk through any sort of changes or initiatives you have to monitor those impacts?

Yes. Thanks, Ben. So 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 found is that it takes a while, let's say, 18 months to 2 years for these distribution arrangements to come onstream and start getting to a decent amount of production.

And so if you take the U.K., for example, in '24 and 2025, we generated and entered into about 10 deals per annum. And those are obviously starting to come onstream and helps 2025, 2026 and beyond. And I think that, that's true also in the case in Europe. So the bancassurance deal that we referenced was sort of the tail end of 2024, early 2025. And what we're seeing is a helpful uptick in the production from that arrangement.

And I think, similarly, if you look across to the U.S., we are seeing improved momentum in the sort of U.S. DPD partnership space. We continue to add partners at the same time. So we put on 6 in Q1. Some of those will hopefully turn out to be, let's say, winners and strong performers. Some of them may not be as productive as we had hoped. But in aggregate, I think you can see across each of those markets the distribution deals.

We're broadly winning in that space. And I think that is really a testament to, one, the specialty products that we underwrite, the brand that we've been reinvesting in and the efforts to really engage distribution with the business. So that's sort of the first aspect.

And in terms of inflation, I think this is something that we manage and have been managing for decades. We systematically on the underwriting front amortize the entire portfolio on a quarterly basis. And 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. And in certain lines, we then doubled them again maybe 3 months, 6 months after given that certain lines were more prone on a forward-looking basis, I hasten to add, to potential spikes in inflation.

And then I think on the sort of asset side, clearly the fixed income is short duration. So really if central banks hike their rates, then clearly you get a short-term mark-to-market effect. But essentially, you're clipping coupon on a prospective basis at a higher level. And at 2-year duration, the portfolio rolls over pretty quickly.

Our next question is from Chris Hartwell with Autonomous.

Paul, a quick question, first of all, on U.S. Retail. It's good momentum that we're seeing still coming through there. But equally, I think it's probably fair to say that some of your larger U.S. competitors are growing at a very similar clip. So 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 the small commercial. And I guess why not grow faster given how the environment is currently?

And 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. 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 seen. So I was wondering what the secret sauce is there. What are you doing differently this year than before?

And sorry, Chris, the second question, was that sort of London Market or Re? Sorry, I missed that component.

Well, I think in the release, I think you speak more on reinsurance for the alternative sort of capital growth.

Yes. Perfect. Okay. Thank you. All right. Look, so in terms of U.S. Retail, look, we are happy with the momentum that, that's bringing. It's across each of digital direct, U.S. partnerships and U.S. brokers. So if you look at the digital direct space, the overall growth of that is very pleasing. It's double digit. And in fact, for March, we had our best month ever in that space. So I'm very happy with the progress that, that's delivering.

Partnerships, there has been an uptick and more momentum is continuing. And then in terms of U.S. broker, what we've seen is the uptick and the momentum has increased for each of the last 2 quarters. And 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. So just 2 years ago or 3 years ago, that rate of growth in the U.S. was 1%. So it's gone from 1% to 2.5% to 4.4% and now 8.5% for Q1. So I think that trend is very pleasing for me.

I think in terms of the overall opportunity, it remains very significant. And 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. So 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. So 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.

And 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 4 out of 5 years, really shows the ability to attract and generate, I think, strong returns for our third-party capital providers but, at the same time, generate good fees from a fee income perspective for ourselves. So in each of the 3 years, we've generated in excess of $100 million per annum for those fees. So I think it really shows the strength of that business overall.

Our next question is from Shanti Kang with Bank of America.

I have two. So the first one is just on the Ts and Cs. You guys flagged that those modestly softened. I'm just curious to hear a bit more about the areas that were impacted, so if that's mainly like attachment points or wordings or add covers. So any color on that would be helpful.

And then 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 unlocks that sharp improvement? And how should we expect that growth rate into the rest of the year? Will it kind of steady off? Or do you expect that to keep growing at a similar rate?

Yes. Okay. Thanks, Shanti. So from a reinsurance perspective, yes, I'd say that the feature of the market in 1/1 and 1/4 has been really just the softening in that environment for the market has been more price-led than terms and conditions. I think terms and conditions, as we have mentioned, have broadly held up. There has been some softening around the edges maybe around inclusion of payrolls and broadening that out slightly, along with hours, clauses, again, 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. So more price-led than, I think, Ts and Cs. 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, I'll 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 too in Q1 as well. So happy with that. And I think it's come about. 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 2 years.

And I think from that perspective, 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. But 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.

So those aspects, along with targeting new customer segments like life sciences and tech start-ups, have really driven that momentum in the latter end of last year and into this year. And I remain optimistic for the rest of the year.

[Operator Instructions] Our next question is from Abid Hussain with Panmure Liberum.

I've got still a couple of questions, if I can. The first one is on the capital position. So 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.

And then 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.

And then just sort of I'm just wondering, associated with that rollout of AI, does that generate any further upside to the $200 million change program? Or was that largely baked in?

Great. Thanks, Abid. So look, from a capital perspective, what we said is we're not growing our CapEx. So 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. So I would say the capital generation of the group remains strong and has been, as demonstrated over the past, say, 3 years, for example.

I think in AI, I think the starting point is we rolled out, and as we put in the statement, a group-wide literacy program. And 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. So 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 2 weeks, to give an indication.

I think in terms of like real-life examples of where we're doing it, I think we've trailed well the successes we've had in sabotage and terrorism, in the augmented underwriting space using AI. And 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.

And then 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. And that has, it's very early signs, but improvements around retention and customer satisfaction and conversion. Very early days, but there's a sense of optimism there.

And then I think we also have an AI agent from a voice perspective that is managing either the sales journey or the claims journey from a first notice of loss perspective. And again, the signs are encouraging in that there's something like a 30% reduction on adviser, i.e., human interactions there. So the productivity and efficiency and customer service benefits are clear from that perspective. But again, early days.

And I think from a sort of the $200 million change program, we had 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. And I think what this does is -- at that time we hadn't baked in significant benefits from AI given the relative infancy of that technology, but what we are seeing and I think what it helps is cement our confidence in the delivery of that $200 million benefit to the P&L in 2028.

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's quarter 1 IMS conference call. Thank you for your participation. You may now disconnect your lines.

Well, good morning, everyone. It's wonderful to see you all, and thank you for joining us. 2025 has been a pivotal year for Hiscox. In May, we set out our strategy going deeper into our retail business and making several important commitments. We're executing on that strategy and delivering on those commitments with pace and energy. Our diversified portfolio is built for this market. Growth is accelerating with premiums up $275 million or 6% year-over-year. This is high-quality profitable growth across each of our businesses, driven by product innovation, expanded distribution and customer growth built on our specialty expertise and technology capabilities. and we're expanding our margins.

Our undiscounted combined ratio of 87.8% is the best in a decade, and our record insurance service result is the fifth consecutive year of underwriting earnings growth. And growth is translating into a larger asset base, underpinning a record investment result and contributing to a third consecutive year of record profit before tax.

We are delivering excellent returns with a 12% growth in book value per share and an operating RoTE of 21%, materially above our target. This strong performance, continuing momentum and execution of our strategy enables us to reward shareholders through a new $300 million share buyback and a further 20% step-up in the final dividend per share as we announced at the CMD last year. This excellent performance, combined with our diversified portfolio makes our business strongly capital generative. Indeed, over the last 3 years, we have organically generated over 100 points of regulatory capital, enabling us to deploy capital in an unconstrained way to pursue profitable growth in each of our businesses and reward our shareholders with returns of $1.1 billion over the last 3 years.

Now turning to our results by segment. Retail added almost $200 million of premium as the pace of growth increased to 6.3%, a continuation of our multiyear acceleration. This growth is broad-based across each of our retail businesses, driven by strong customer growth of 7.5% and crucially not rate dependent. And most importantly, this is profitable growth. The retail undiscounted combined ratio at 92.6% is the strongest since 2016. In London Market, we are successfully navigating a competitive environment, returning to growth through product and distribution innovation, while delivering a combined ratio in the 80s for the sixth consecutive year. And in reinsurance, we selectively deployed additional capital to support 6% growth, mostly in specialty lines. And the quality of our reinsurance business is demonstrated by a combined ratio in the 60s for the third consecutive year.

Now let's take a look at how we delivered that growth. And frankly, the pace, energy and innovation of our colleagues has resulted in premiums from growth initiatives increasing fivefold in 2025 compared to the previous year. Supported by the launch of more new products than in the last 5 years and expansion of distribution. As we set out at the CMD, there is a huge structural growth opportunity in Retail. And we're capturing this through entering more segments, launching more products, expanding distribution and more markets.

Retail is on a multiyear growth acceleration journey. We grew 4% in 2023, 5% in 2024 and over 6% in 2025 and plan to step up growth to 8% for the full year 2026. We have set the course to achieve double-digit growth in 2028. In London Market, we are leveraging our deep underwriting expertise to expand into new adjacencies while deploying AI augmented technology platforms to access new markets. In reinsurance, we have captured the opportunities of the hard market, increasing our net premium by 180% since 2020. Now the ability to innovate is a crucial part of our Hiscox DNA. It has and will continue to open up new growth opportunities in every part of our business.

Now let's take a look at innovation in action at Hiscox. Now what you can see here is a sample of the initiatives we've taken in the last year to expand our business and drive growth. We're executing on these with pace and energy, launching new products at an excellent rate. Some of these you may remember as work in progress at the half year. These have now been launched, and we have refilled the pipeline with new products and opportunities that will begin production in 2026. For instance, in the U.S., one of our largest DPD partners has expanded our access to their agent network. And in the U.K., we followed up on the signing of one of our largest ever distribution deals in 2025 with an even larger opportunity that will begin producing premium in the first half of this year. In France, we successfully launched our new cyber product in the fourth quarter. This will be rolled out across all of retail in due course. These actions and many more are accelerating retail growth and enabling us to capture more of the $317 billion target addressable market.

And in big ticket, our innovation is moderating the impact of cycle management in certain lines. During the year, we leveraged our existing technologies to grow into SME cargo and U.S. middle market property. In addition, using our underwriting expertise, we expanded into new adjacencies such as tech E&O and financial institutions. The blend of technology and underwriting expertise gives us the confidence to pursue new opportunities with more initiatives set to appear on this list over the coming periods.

Now let's turn to the transformative force that is beginning to reshape our industry. Now with the advent of generative artificial intelligence, we are seeing the beginnings of profound changes in society and our market. The way consumers and small businesses are buying insurance is beginning to evolve. Large language models, LLMs are increasingly a key part of the buying process. Now with our experience, decades experience of providing specialist insurance directly to customers, we have an established competitive advantage from our trusted and distinctive brand to our leading Net Promoter Scores and high-quality service. These objective strengths stand out even more in the world of AI, where agents -- AI agents can evaluate a policy quickly on more than just price.

We've been investing in technology for many years, building out our core systems and improving data quality. We have a leading global digital platform for small commercial insurance, now approaching $900 million of premium at almost 900,000 customers. These investments enable us to implement AI tools relatively quickly at a modest cost. We're excited about the efficiency and growth opportunities that AI brings. And we're not standing still. This year, we will begin to roll out new, more powerful customer and broker portals in the U.S. and in Europe. These will enable us to personalize the purchasing journey and help customers identify their insurance needs and simplify and speed up processes for brokers.

As of this month, in fact, I think it's today, we are deploying AI agents into our U.S. customer contact centers to create real-time feedback loop for our operations and marketing teams on customer experience and sentiment. And if a customer wants to make a claim, an AI agent will be there to help. We are embracing generative AI for the benefit of our customers, our colleagues and our shareholders, and I believe Hiscox is well positioned to win.

Now turning back to today's results. We've delivered on our promises in 2025. Retail has grown 6.3%. This growth will accelerate in 2026, building to 8% for the year before reaching double digits in 2028. Our operating RoTE of 21% is materially above our mid-teens through-the-cycle target. The change program has delivered a P&L benefit in the year of $29 million and is on track to deliver $75 million of benefit in 2026. Paul will provide further details on this. And our shareholders benefit from our growth and earnings with a 20% increase in the final dividend per share and a new $300 million share buyback.

With that, I'll now hand over to Paul.

Thanks, Aki, and good morning. It's great to be here with you all today presenting another strong set of results. We have achieved high-quality growth across each of our segments with ICWP up $275 million or 5.9% against the backdrop of falling rates, demonstrating the strength of our diversified growth. Importantly, we have delivered excellent profitability alongside this growth. The undiscounted combined ratio of 87.8% drove a record insurance service result of $614 million. The group's profit is supported by the record investment result of $443 million, underpinned by increased AUM following stronger premium growth. Our superb underwriting and investment results have translated into a record profit before tax of $733 million, up 6.9% and delivered an attractive RoTE of 20.9%. This is despite a 2.5% drag from the increase in the effective tax rate.

The group's excellent profitability has driven substantial capital generation with a year-end estimated BSCR of 233%. And this is after returning over $400 million of capital over the course of 2025. As a result of our strong capital generation and balance sheet, the Board has ratified the 20% step-up in the final dividend per share announced at the CMD.

In addition, we will be returning $300 million to shareholders through a new buyback, resulting in total returns of over $450 million in respect of 2025. Delving into these results a little further, starting with our Retail segment. In line with guidance, Retail ICWP grew by 6.3% in constant currency to over $2.6 billion. This growth has been broad-based across all markets as management actions delivered results. Growth has been accompanied by an improvement in the undiscounted combined ratio to 92.6 partially due to early benefits from the change program. Importantly, retail growth is transforming the shape of the group's earnings profile with retail representing nearly half of the group's PBT, up from just over 40% in 2023.

Moving on to London Market. London Market returned to growth with ICWP increasing by 1.6%. In a competitive market, the business benefited from product innovation and opportunities arising from London Market's diverse portfolio. Profitability continues to be strong with an undiscounted combined ratio of 85.9%. This is testament to our underwriting discipline, risk selection and pricing as we navigate the market's micro cycles.

Turning to reinsurance. Net ICWP grew by 7.9%, driven by growth in pro rata and specialty lines, including our climate resilience portfolio, mortgage and surety. The quality of our risk selection is demonstrated by an insurance service result of $189 million and an undiscounted combined ratio of 67.4%. Fee income of $109 million is very healthy, above $100 million for the third consecutive year. And we continue to see strong interest in our ILS funds with more than $330 million raised in the last year and a robust pipeline for 2026. ILS AUM on the 1st of January 2026 is $1.5 billion. As we continue to see strong capital inflows from third parties, while managing our own net exposure to property cat perils, the earnings mix between fee income and underwriting will continue to evolve.

Moving on to our change program. We're making strong progress. On this slide, you can see examples of achievements against our ambition and some of the actions that will deliver benefits in 2026. We have significantly increased fraud detection rates through new capabilities, representing a real cash saving in 2025. However, given our conservative reserving philosophy, much of the benefit is yet to be recognized in the P&L. We have in-sourced over 100 roles in our Lisbon Tech Hub, enhancing the capabilities that drive our competitive advantage while leveraging the use of a lower-cost location.

In 2026, we will build on this, rolling out more centers of excellence and further extending the scope of outsourcing where we benefit from the greater scale that specialist providers, partners provide. In procurement, we have reduced our property footprint and continue to consolidate our suppliers, enabling us to negotiate better terms. Over the coming year, we will double down on this, increasing the number of strategic partnerships and preferred suppliers while better managing demand within the group through improved cost governance.

Finally, in technology, we decommissioned 20% of our applications in 2025 while launching new automation tools across the value chain, which will help to drive scale into the business. This will continue in 2026 as we launch new automation tools that will deliver efficiency benefits alongside driving revenue growth. Looking at the benefits. We're on track with our change program and we have achieved a benefit of $29 million at a cost of $24 million. And while we're slightly ahead of our 2025 benefit guidance, there is no change to our targets.

We remain on track to deliver a $75 million benefit in 2026 as we optimize processes, sourcing and procurement, fraud detection and recoveries. We expect the cost to achieve to be $75 million, which includes costs associated with in-sourcing and outsourcing, legal expenses and tech implementation costs, including some of the exciting new capabilities that Aki referred to earlier. And these will help to deliver a $200 million P&L benefit in 2028.

Let's look at how this is impacting the P&L. Disciplined cost management and savings from our change program means that our underlying expense base has increased by just $6 million. This is despite inflation and changes in variable comp and the investment in growth and technology initiatives highlighted by Aki. This, in turn, is driving improvement in our operating jaws with a 0.8% increase in underlying expenses comparing favorably to a 5% growth in premium in constant currency. Overall, this is very pleasing progress.

Now turning to investments. Our record investment result benefited from strong yields and increasing assets under management as growth in the business translated into more assets on the balance sheet. As we go forward, that increase in AUM will help to offset the small reduction in the reinvestment yield to 4%. As such, strong investment returns should continue to provide a tailwind for the group. The quality of the fixed income portfolio remains high with an average credit rating of A, and the business is conservatively positioned on the asset side.

Looking at reserves. Our conservative reserving philosophy is unchanged with a risk adjustment of $345 million, representing an increase in the confidence level to 86%, slightly above our target range. And this is despite a healthy level of prior year releases and reflects the point where we are in the cycle, the quality of our underwriting and the conservatism of our reserves. Over time, we expect the confidence level to return to within the 75% to 85% range. The conservative nature of our reserving has enabled us to release $293 million or 7.2% of opening reserves for 2025, continuing our long history of an uninterrupted positive reserve development. All accident years are below the initial estimate and continue to run off favorably.

Finally, an update on capital. The group has delivered outstanding organic capital generation of 34 points. This has supported both investment in the business and returns to shareholders of 22 points of capital, resulting in a year-end BSCR of 233%. Following the payment of our final 2025 dividend and our new $300 million share buyback, we have a pro forma BSCR of 211. This compares favorably to our through-the-cycle operating range of 190 to 200, providing us with the flexibility to capture opportunities as they arise in a rapidly changing market. Thanks for listening.

And with that, I will now hand over to Jo, who will provide you with an update on underwriting.

Thank you, Paul, and good morning, all. So our underwriting results reflect disciplined cycle management, profitable expansion and a strategic investment in both data and capability to continue to build a balanced and diversified portfolio, which you can see on this next slide. Our retail compound growth is anchored in profitable underwriting, delivering a core of 92.6%. In the U.K., Private Client is up double digits as we continue to benefit from our market-leading expertise. Commercial growth is due to an expanded customer base and a sharper sector focus.

In Europe, France and Germany are leading the charge as we continue to go deeper into our chosen segments and deliver new products tailor-made to our customer needs. And in the U.S., Digital Direct is continuing its excellent growth. Momentum in partnership is building and broker once again expanding as we have delivered improved service delivery and a slightly broader appetite.

Turning to the London market, where our ability to manage those micro cycles has remained a key differentiator, and we've once again delivered a combined operating ratio in the 80s. So property has seen some growth fueled by a U.S. high net worth portfolio and the tech-enabled expansion into mid-market. And this is offsetting some intentional cycle management in major property and commercial lines. We've seen some modest growth in casualty. We've had some rate tailwinds in general liability and a successful launch of financial institutions and technology E&O. And this is mitigating some declines in cyber and D&O as those markets continue to soften.

And then lastly, reinsurance, a slightly softer market in 2025, but still a really favorable market. And despite another year of over $100 billion in industry losses, our risk selection, our robust reserves and a benign second half has enabled us to deliver a core in the 60s. So where are we in the cycle and how favorable is the market? So this next slide, hopefully, a familiar slide to you. So the chart on the left is our rates indexed back to 2018 for our segments. The purple line, which is Retail, is just less sensitive when it comes to the rate cycle. Rates were up in aggregate 2% and pricing across U.K., Europe and the U.S. remains strong.

In 2025 for the first year in many saw aggregate rate declines for both London Market and reinsurance, although we remained in an attractive market. So the blue line is our property cat reinsurance rates come down 4%. This moderated as we went through the year as our midyear renewals, particularly those loss affected, attracted some rate increases. Across the whole of the reinsurance segment, rates were down about 5%, but still up 83% since 2018. And we saw a similar story in London Market, a 4% dip in 2025, but still at 67% since 2018. And that softening has continued in 2026. So our January renewals saw London Market come down another 4% and reinsurance down 13%, particularly in the areas of property, cat and retro.

So the chart on the right gives you an indication of what we believe that does to the rate adequacy of our portfolios. So as a reminder, adequate means we believe it's adequately priced to deliver a good return in a mean loss environment. Adequate plus means we've got margin in addition and low, still profitable, but just below our target underwriting reserves. And you can see, despite the softening, we believe that much of the portfolio is still really well positioned to deliver a good return. And we benefited from some tailwinds in our own outwards reinsurance purchasing. So mastering changing markets and managing micro cycles is not new to us, and we continue to have many different portfolios in many different parts of the markets. And you can see this on the next slide.

So the London Market rate environment is highly nuanced both at a line and a divisional level. And you can see the divisional picture on the right-hand side is quite different to the London Market headline. During this period, casualty rates have declined, whilst property rates have seen significant gains, and we've acted decisively. So during the same period, our average exposure per policy and casualty has reduced by 20%. And more recently, we've added over $100 million of property income. This laser focus on exposure management and profitable expansion has been the key to that consistency in that combined operating ratio.

So we've learned from lessons of the past and our enhanced cycle management is really focused on 4 things. Firstly, a forward-looking view of risk, really understanding those inflationary trends, whether they be economic, societal or climate. A market in transition framework. This is a framework that's honed to capture the position of each one of our lines in the market and proactively respond to evolving conditions. Exposure management, we absolutely know -- need to know when to trim when we don't believe we're getting paid to take that risk, but also when to expand when we believe the expected returns justify the exposure.

And lastly, new, of course, we want to actively manage the portfolio that we have and seize new opportunities for profitable growth. So this next slide gives you a little bit more information on our market and transition framework. So what you can see here, each bubble represents a line of business in London Market. So this is a proprietary framework. We built it around 10 quantitative type metrics, things like technical index, exposure deductible. And we add to that 5 more subjective metrics on the market. These could be things like broker interaction or terms and conditions. So for London Market, we're monitoring 285 metrics on a quarterly basis, and we have a very similar framework for our reinsurance business.

Now each metric has an expectation or a tolerance and flags for investigation if it's outside of that. Now not all investigations will result in underwriting action. Most often when we look, the underwriting action has actually already been taken. But when it is required, responding really quickly is key, and that could be reducing your line size as an example.

So in summary, a transitioning market, but a largely attractive market. So unlike our big-ticket businesses that flex with the cycle in Retail, we're looking for compound growth through the cycle, all anchored in consistent profitable loss ratios, and you can see that from the chart on the left-hand side. We've built out a specialist underwriting ecosystem from risk selection through to claims management, all underpinned by investment in brand, technology and capability. Our focus is squarely on customer value. We invest in our segments for the long term. We maximize value through market-leading retention and product penetration. After decades of investments, the majority of our retail customers already benefit from being auto underwritten, but we have ambition to go much further.

And lastly, new, we want to deliver new products and services to existing customers, go deeper into our segments to attract new and boldly go into new markets. So as I look forward to 2026, my 3 priorities are clear. Firstly, a relentless focus on managing our portfolio, knowing when to trim, but also knowing when to expand when the outlook is compelling. Turbocharge innovation. We want to find quicker ways to bring new products, new services and expanded appetite to market. And lastly, capability. We want to blend humans with the best humans with advanced technology to really amplify our specialist underwriting expertise. And we want to train our underwriters for skills for the future so they've got data fluency and a practitioner at their core. Thanks very much. I'll now hand back to Aki.

Thank you very much, Jo. So looking ahead to this year, as a result of the pace, energy and innovation we've generated, this year is positioned to be another really exciting year for Hiscox. Retail growth momentum will continue into 2026, building to 8% for the full year and on track for double digits in 2028. In big ticket, we expect innovation and new opportunities will moderate the impact on growth from our disciplined cycle management activities. And in reinsurance, following strong growth in recent years, in 2026, we expect to maintain our natural catastrophe exposures broadly flat on a net basis, while we are continuing to seek out growth opportunities in specialty classes.

And finally, as you've heard from Paul, our change program remains on track to deliver $75 million of P&L benefit this year. So in closing, 2025 has been a pivotal year, a year of record underwriting results record investment results, record profits, and momentum has been building over the last few years and is set to continue. The group's combined ratio is the best in the decade. Retail's margin continues to expand. London Market has delivered a combined ratio in the 60s -- sorry, in the 80s, I wish 60s, 80s for the sixth consecutive year and reinsurance in the 60s for the third consecutive year. And in our change program, we are delivering expense efficiency and a significant build-out of capabilities with more to come.

Our operating ROTE of 21% is materially above our through-the-cycle target. And our capital generation has been strong, enabling us to deploy capital in an unconstrained way to pursue high-quality growth in each of our businesses and to reward our shareholders with capital returns of $1.1 billion over the last 3 years. We look forward with confidence and optimism. These are exciting times at Hiscox. Thank you for listening. And now we'll take questions. Okay. Why don't we go right to left. So Shanti?

It's Shanti from Bank of America. The first question was just on the retail growth outlook, that step up to 8% in '26. Where is that really being driven from by region? A walk of how to get there from the 6% that you've done this year would be quite helpful.

And then I was just looking at the claims ratio in Retail this year, and it looked like that deteriorated a little bit year-on-year based on the restatement. Is there any reason for that deterioration? Is that really on more conservative initial loss picks? That would just be helpful.

Okay. So kind of taking each of those in turn. In terms of the growth outlook, okay, I think context is important as well. So we've already taken the business from what was 4% growth in 2023 to 5% and then over 6%. And as you say, we're guiding to 8%. This is broad-based growth. There's no one single action that's driving this. It ranges from the effectiveness of our distribution teams and our distribution functions. And as you've heard me say many times before, we are increasingly winning positions on broker panels. We're winning new opportunities, new distribution deals. In fact, the U.K. has been leading the charge across the group on that.

In our U.S. business, we're adding more partners. This year or in 2025, we added a further 23 partners. So as those gain traction and build production as well as growth from our existing partners. We're continuing to invest in marketing. In 2025, we increased the investment by 9%. I think we're now at about $109 million. You can expect that to go up by a further 10%. This is a great investment. We get very good returns from the step-up.

We have stepped up our product innovation and expansion into adjacencies. And you can see that reflected in the 5x growth from new initiatives. We've turned around the U.S. broker business. That is now growing. So it's a range of different factors that are driving that -- that are achieving that growth. And as I mentioned earlier, and this is not rate dependent. In fact, rates have been going the other way. We have now come off the rate step-up that we were seeing in the Retail business as a result of inflation as inflation has abated.

And if you go back to 2023, the rate increase was about 7%. Now the rate increase is 2%. At the same time, the growth has grown from 4% to 6%. You can see what the underlying is doing here. This is a volume-driven growth story here, and it's largely about the effectiveness of the management actions we've deployed over the years. In terms of loss ratio, look, we don't land this on the head of a pin. That is a market-leading loss ratio for the Retail business, we're very pleased with it. Andreas, I know this will and keep going.

Yes, Andreas van Embden, Peel Hunt. Just on cycle management. It sounds like we're going to continue growing exposures into a softening cycle in the next few years. I just wonder if you take a 3-year view through this planning cycle, what are your assumptions about the increases in capital requirements across the business. Is that going to be a gentle sort of rise over time as you grow exposures or will you, at some point, de-risk that property cat book and will capital requirements come down again? That's the first question.

And the second question is on your reserve buffer. You're now at the top end or slightly above the top end of the range. Is this something that will be released in the future? Are you being sort of extra cautious or will inflation eat into those buffers, so it will naturally erode within that 75%, 85% range?

Okay. Thank you, Andreas. So I think there are kind of a number of parts to that question. In terms of how we expect the big-ticket business to evolve over the next period, I think we've spoken about the fact that our product innovation and expansion into adjacencies will moderate the cycle management activities. I think Jo can provide a little bit more detail on that. In terms of capital requirements, as we expect them to evolve and the reserve buffer, Paul will address that.

Yes. Thanks, Aki. So as I said, we are a disciplined underwriter, you can see that in terms of our track record. So what we didn't say was we're looking to grow exposures, there's lots of lines where actually we have actively and decisively shrunk exposures. So we talked about some of the casualty lines where the rate has been decreasing. We've been actively taking -- reducing our exposure during that time. And as we look forward, we're seeing some softening in our property lines. And clearly, if that continues, we'll trim.

So first and foremost, we are a disciplined cycle manager in our big-ticket businesses, albeit we are still in an attractive market today. And obviously, the rate adequacy slide show that in the majority of the portfolios, we still have rate adequacy. So that's -- but I think what we did say is what we've managed to do, particularly in 2025 is we've just mitigated some of that intentional cycle management action by some of the new things that we've been doing. And that's the launches of adjacencies.

So we mentioned a couple in casualty. I mentioned the sort of mid-market property expansion as an example. That is offsetting some intentional reduction elsewhere. In casualty, we launched technology E&O. Now we've been a tech E&O writer for a couple of decades across all of our Retail business. It's a real heartland for us. And we launched a new product in our London market business. So this is to capture the slightly larger customers, find their way to London, written on a subscription basis. So that's what we're talking about in terms of that cycle management.

Of course, we are a disciplined writer. I always say our job is to make money in the market that's in front of us, not the market that we'd like to have in front of us. So we'll react accordingly, and we're looking for new opportunities to profitably grow. And it's the combination of those 2 things. So it's actually really underpinned that consistency you see particularly in the London market with an 80s combined for the last few years.

Yes. Building on that and how that translates into capital. So I think there's kind of 3 drivers. One is market conditions looking ahead of us, the second is the retail business and the third is cat P&L. And I think if you look at sort of consumption over, say, the last 2 years, it started to moderate. Now the reason that started to moderate is we've really held our cat P&Ls constant, but at the same -- and that's off of, obviously, a very high base as rates of strength. And you heard that we've increased our premium income 180% from a capital perspective over the last 5 years.

So we sort of hold that constant. But what you've seen is the retail business accelerate in terms of its momentum. And looking forward, we've talked about 8% in 2026 and double digit for 2028. Now clearly, that requires more capital. Retail is the least capital intensive part of the business, but it still requires some capital on the balance sheet to grow.

And so what I'd expect is that degree of moderation looking ahead now, clearly, the third dynamic is what happens with market conditions and also what happens about these opportunities that Jo has talked to around innovation, that will dictate whether we sort of need less capital and reduce exposure or actually need more because we're taking advantage of these opportunities.

So that's sort of the outlook ahead of us from a capital perspective. I think from a reserving perspective, I think the important aspect around inflation is it's built into our loss picks. So we do have a cautious approach to reserving. We have a cautious approach to our loss picks, and that does obviously generate redundancy coming forward. Now our positioning at 2025 from a year-end perspective has been quite deliberate. We obviously have built on that sort of conservatism that we've talked about by increasing the confidence level.

We are at 86% from 83% but we've also increased the level of margin in the reserves. And I think that puts us in a great position in terms of where we are at this point in the cycle. And you're absolutely right, Andreas, that looking prospectively, we've got a range of 75% to 85%. I'd expect us to trend back within that range. And I don't think inflation as we currently see is an issue because it's already built into the loss picks.

Will?

Will Hardcastle, UBS. If I can try and pin you down slightly on one of those answers, Paul. You mentioned the capital consumption. I think it was 13 points in that solvency bridge last year. Just linking it with Andreas' question, is that likely to be a relatively stable number? And I know there's a bit of a range around that? Or is it likely to go more likely down than up next year?

Then on the LLM impact into the SME distribution, I guess you touched on it in the conversation, Aki, but I'm really trying to understand whether you -- what are the risks, what are the threats and what are the opportunities for Hiscox to really take advantage and why? And it's really thinking about broker disintermediation by the LLMs.

Okay. Paul, if you address the capital point, but let me cover the LLM point first. I guess, first and foremost, we are pretty excited about the ability and the prospect of using LLMs and frankly, the emerging world, which is not quite here yet of agentic e-commerce. We have a long track record of investing in technology and being on the front foot, particularly when it comes to that small commercial business segment, which is a heartland for the retail business.

And again, if you look at the context, we've been investing in that business in terms of technology, et cetera, for decades. We have a market-leading global platform now that covers 12 countries, U.K., U.S. and Europe, with $900 million of premium flowing through it and serving 900,000 customers roughly, which is highly automated with all the underwriting automated. So in excess of 99% of the risks that flow through that platform are auto underwritten.

So we've invested in the technology. We've been ripping out core systems and replacing them with new. We've been cleaning up the data for many, many years. And actually, that puts us into a fantastic position now that with the advent of Gen AI, we can actually build our own or adapt -- adopt rather the AI tooling relatively quickly and for a relatively modest cost. And that's exactly what we've been doing across the business.

So we're excited about the efficiencies that this will bring, but we're also really excited about the growth opportunity, the expansion of our reach into our customer -- into our prospective customer base and also the opportunity to develop new products that, frankly, just didn't exist before, and I think that's going to be a real opportunity for us as well.

I mentioned earlier that we're deploying AI today, right? So there's things that we've just done. There are things that are in development that we are doing. And what we've done, we're already using AI agents in our marketing analytics. We're using it to triage broker submissions in the U.K., and that's going to be rolled out across the whole of the group. We were first to launch an AI augmented lead underwriting platform in London market. That was the first for Lloyd's. Again, we were able to do that because we've already invested in the tech and the data.

The emerging things that we are doing, which are really going to open up the funnel for growth. It will take a bit of time because it does require customer adoption as well. So we have -- I think it's today or yesterday, we've launched AI agents into our U.S. call centers. That will give us, I think, as I mentioned earlier, real-time feedback, immediate feedback to our operations teams on customer sentiment and experience and also feed directly into our ads platform, right, which then dictates how we then market back to those customers.

If you think about the strength that we've built up over the last decade, which is having a trusted and distinctive brand, market-leading claims service. We have an NPS score, which is in the 70s and 80s. The market average is materially lower than that. Our world-class customer service, the tailored coverage that we provide, these are all objective strengths, which in the world of AI agents and agentic e-commerce stand out, right?

In the old world or -- sorry, in the current world, really, if you go online, the only thing you can really compare on is price. We don't trade on price. In the prospective world, as a new person who's buying insurance for their small business, you can get much more information. And in that world, I think we open up the platform. I think we will stand out much more, and we are readying our platform for the world of agentic e-commerce.

As I said, we're in the process of building for deployment later on this year, new, much more powerful portals. These will sit alongside. If you think back about the strategy that we've had, we have an omni-channel distribution approach, right? We are building leading platforms to enable us to access and trade with brokers. We trade with partners and we go direct. This agentic e-commerce channel as it were, certainly for the moment, will just sit alongside depending on customers' preference. So we're pretty excited about it. But a lot of the hard work has been done, and now it's about implementing these new tools and seeing how they're adopted, both internally and externally.

Just on consumption, yes, to knock that one off. Yes, so based on the conditions we see ahead of us today, consumption will be lower.

Ivan?

I've got one big AI question and 2 small finance questions, please. So on the big AI question, I'll start with that. I think there's a perception that for reinsurers, the underwriting edge is essentially the moat that can protect you from being disrupted. So I was just wondering if you could maybe provide some of your views on this. And if you think about your data and what's out there in the market for available for underwriting, how much of it is publicly available, like cat models or cyber models or whatever it might be? How much of it is proprietary? And how much of it is unstructured proprietary that you could still tap on, but maybe where you are in that journey versus peers? So that's question one.

And then question two, I mean, I've noticed that across your growth initiatives, and this has been a trend for a little while now, you don't really have like AI CapEx, data centers and all that. And I was just wondering what your thoughts on that might be? Is it the next leg for you to expand in? Or is there a reason why you haven't really been pushing there? And the third question is, I mean, on the capital ratio, obviously, you have to 11% now, 13% stress. It gives us 180% post-stress ratio, which I think in the past was like a good guide for how you would manage your capital. Is this still the case? Or any developments there?

Okay. Thank you for those questions, Ivan. So what's our underwriting edge in reinsurance? I think that's one for Jo. In terms of underwriting appetite then in terms of data centers, et cetera, again, another one for Jo. And Paul, if you want to address the question on capital and how we manage that within the ranges?

Yes. Thanks, Aki. So I think in answer to the question, it is a combination. So what we rely on is, of course, and I talked about it, we, of course, rely on in that reinsurance world, the best external models as an example. We take what's available, but then we blend and we overlay what we call a Hiscox view of risk. And we do that across both our reinsurance and indeed, all of our other insurances. And that is really important, and that is proprietary, where we are utilizing our own proprietary information, our own bespoke data sets, building in things like that forward-looking view of inflation. It's really important for us to get ahead of some of these trends and price forward.

So I'd say in terms of the edge, it is a combination. We are utilizing the best external data, but also blending that with our own internal data. And of course, we're using technology, have been for many years in that underwriting process to do 1 of 3 things, either to make us easier to do business with. So take the reinsurance example, how can we consume submissions quicker. Clearly, the advance of technology enables us to consume more submissions in a much shorter time, much better in terms of response time back to, in that instance, brokers or indeed more broadly, customers, we're utilizing it there, absolutely utilizing it to make better decisions.

So whether that is ingesting third-party data, make us -- make better underwriting decisions, underwriting of pricing decisions, that's sort of the second area that we're utilizing and clearly making us more efficient. So I'd say it's a combination. It definitely is looking outside and taking the best external information that exists and then blend into our own proprietary data sets.

So with regard to data centers, yes, absolutely. I mean, data centers is definitely becoming a significant area. We talk -- there's a lot of talk about it being a structural growth opportunity, and it really is underpinning that digital economy. We're really thoughtful. We're really thoughtful. We have lent into that. We're curious. We've deployed some capacity in both our primary and our London market business and in our reinsurance business.

But at the moment, we're thoughtful because one of the significant areas that we need to get a head around is accumulation. And we're also investing at the same time, deploying a little bit of capacity. We're also investing in building our own accumulation model. So we're really clear around where these accumulations lie, and we can actually manage them -- managing them ourselves. So yes, watching it, deploying some capacity, but also thoughtful in terms of accumulation.

On capital, at the CMD, we announced our target operating range through the cycle of 190% to 200%. You'd see the 211% on a pro-forma basis is a bit outside that. So sometimes you can expect through the cycle we will be outside it. I think it's a small amount above. I think we've struck the right balance between the increased share buyback that we have announced today of $300 million and retaining the optionality for further opportunities for growth. We are a growth business, if you look at our capital management framework, the first priority is growing the business.

Okay. Let's keep going along. Abid?

It's Abid Hussain from Panmure Liberum. I've got 3 questions. The first one is on the pricing cycle. Just wondering if you could talk to your past experience on previous soft cycles and that move from adequate pricing to inadequate pricing. Is that typically gradual? Or does it happen in a sort of cliff edge moment? And if so, are you looking forward, are you sort of seeing potentially any cliff edges on any key lines of business, so that's the first question.

The second one, just coming back on the reserving philosophy. So you're reserving now at 86% above the 75% to 85% confidence interval that you set yourself as a target. And it sounds like you're saying you're just being conservative because pricing is softening. Just wondering if there were indeed any areas where you saw loss picks deteriorating, any sort of concerns at all? Or is it just genuinely just being conservative? And then just sort of how quickly would you expect yourselves to trend back to around 80%. So that's the second one.

And then just finally, very quickly, the final question on M&A. Are there any areas where you benefit from participating in M&A? So I'm thinking really sort of adding new capability, new sort of product sets in adjacent areas to help you accelerate growth in adjacent areas.

Okay. Thank you, Abid. So in terms of the evolution of the pricing cycle, Jo will take that. In terms of reserving, Paul will provide commentary. In terms of M&A, I guess the first thing to say for our business, as you can see from the results today and from previous years and the diversification within our portfolio is we don't need M&A for growth. We have a fantastic retail franchise, where I think last year, we set out the extraordinary growth opportunity. And what you can see is over the years, we are accelerating the pace at which we're capturing that opportunity, and we're very confident and optimistic, frankly, about getting to 8% in 2026 and extending that up to double digits in 2028.

And in our big-ticket business, again, we've demonstrated we are leading class in terms of cycle management. At the same time, we are -- we've stepped up the product innovation, and we are expanding into adjacent classes to moderate the impact of cycle management. Now again, if you look at the history, we're approaching $5 billion of premium. That is almost exclusively organic growth. That is the predominant form of growth that we will achieve.

But what you also saw from 2025 is where there's a strong strategic rationale and the financial metrics make sense, we will consider small bolt-ons. Of course, we purchased a very small entity called Lokky in Italy, which we closed in the second half of last year. That gave us a toehold into the country. Frankly, no premium, but it gave us a system, and it's given us 23 people who understand the local market. It was a pretty new start-up. And we are now consolidating that and that we will move forward from there. Pleasingly, we are getting premium in 2026.

And then we also deepened our presence in the U.S. where we made, again, a very small acquisition. And just building on your point, Abid, that did give us access to a couple of classes of business that were on our to-do list, but it's given us quality underwriters, some engineering capability and access to life sciences and tech start-ups. And it's also given us the beginnings of a tech platform for our broker intermediated channel as well. Over to Jo on the pricing cycle.

Thanks, Aki. And maybe if we can just bring up that pricing chart because I think it's a helpful backdrop. I'm not going to give any predictions on the pricing cycle going forward, but just maybe just some observations on the cycle that we've already been in. I think this has been a very different pricing -- a hard market or hardening market than we've had historically. I think if you look at that slide, I mean, we've had gradual increases over many, many years across different lines.

And I think that's because it's been driven by lots of different things. So it's not just been driven by significant cat activity. It's been driven by lots of things, whether it be low interest rates, whether it's high inflation, geopolitical uncertainty, emerging risk, climate change. There have been so many different factors that have driven this current cycle that it's been really, really prolonged. So it's difficult to see one thing disappearing and the market changing overnight.

I think the other thing about this cycle, which has been very unusual is it was actually primary insurance led. So normally, cycles are reinsurance rates led, reinsurance rates go up and therefore, you have to put your primary rates up. Actually, you can see that red line, which is our London market lines. I mean, they moved significantly quicker than the blue line, which is property. And actually, during that early period, '18, '19, '20, I mean, we were calling for a harder market in reinsurance because we just didn't believe we were getting paid to take the risk. And so we were actually very vocal in terms of that.

The other thing on the red line, and I showed you with the sort of underneath is that's an aggregate view. What actually was happening with those early rate rises was casualty. So casualty was the early rate rises. Casualty has now softened, but rates went up 200%, 300% for some lines, and now they're moderating. Property lines really started to move in sort of 2023. And I think the other really important thing about rating is what you can't see on this slide is terms and conditions. We all talk about the rates going up or down. We talk about rate adequacy, but actually terms and conditions are really significant.

So the biggest driver of the '23 blue line, yes, of course, rates went up 30%, 40%. But actually, terms and conditions materially changed, particularly attachment points in reinsurance and terms and conditions tighter around the coverage and those have largely been maintained. So when we look back at this softer part of the cycle as in '26, where rates have come off, actually, it was a price-led softening. Terms and conditions, attachment points have largely maintained, which is why there's a vast majority of that.

So I talked about it being a really active year, over $100 billion, $120 billion of industry losses in 2025, but a lot of them didn't make their way to the reinsurance because of that attachment point. So yes, no predictions for the future other than to say it's difficult because it's being driven by so many different things. I can't think of if one thing changed overnight that obviously, the cycle would dramatically change in one go.

Its a good segue across to the reserving. I think -- so what I'd say is and what we said consistently is our conservative reserving approach remains the same. So it's unchanged. We have a prudent best estimate, and we've built upon it. I think the important point for 2025 is we're coming at this from a position of strength, the increase in the margin and the increase in the confidence level to 86%. And that really builds on what Jo has just said.

We're coming at this from a point where we've got high-quality underwriting. I mean, look at the loss ratios that we've delivered across each of our business segments. So the quality of the underwriting, the diversity of the portfolio enables us to do what we've done in 2025. I think in terms of the pace of the -- getting back within the range, I'm not going to guide to that, but we will be back within it.

Just to add to Paul's point, if you flip back to the slide which shows the reserve releases, where you can see we're in a, I guess, in a fantastic position where you've seen stronger reserve releases predicated on, frankly, every accident year seeing a positive trend and at the same time, increasing reserve redundancy. And that's something just to kind of factor in as a package. That's what you're seeing here. Daniel?

Daniel, Morgan Stanley. Encouraging to see the change program coming through as expected this year. I'm just wondering the actions you put through this year, do you see them as quick wins or easier than the actions to follow from here? Or is there any -- another way to phrase the question, is there anything that's been harder to achieve this year than you expected or anything that's coming up that you think will be harder to achieve than what you put through this year?

Okay. Paul will cover kind of the detail of that. Let me just give you a kind of overarching comment. The overall program, I think we laid out the categories last year, is tech rationalization, capability buildup, procurement and operational excellence. The program is underpinned by tens of initiatives. There's no one single initiative that's going to kind of drive the savings.

And reality is not everything is going to work. But that's kind of factored into the number of listings we have, which if they all work, the sales will be a little bit more than what we set out. So there's some contingency built into that, but I'll let Paul get to the meat of the issue.

Yes, absolutely. Thanks. So I think the important thing to bear in mind is what we're trying to achieve. So it is all about really driving scale, improving productivity across the business and the $200 million falls out of the back of that. If you look at what we've done for 2025, the $29 million gives us a really good baseline going into 2026, and we've got a clear line of sight of that $75 million that we'll deliver by the end of this year. There are, of course, some quick wins within this. So setting up a procurement function is one aspect where you can renegotiate some contracts.

I mean, I say it's easy, but there's obviously a lot of work in understanding how you get to that point. But I'd say to Aki's point, the number of initiatives that we've got on and the strong sponsorship and the program management around this gives us strong confidence in those areas. So we talked about the benefits and the visibility that we're seeing around, say, fraud and recovery, we have in-sourced as you can see there, more than 100 roles to Lisbon that is at a lower cost. So that is already sort of underway.

We're sort of in the middle of outsourcing since certain components. And again, good line of sight on track in terms of that component. So I'd say the program is well established. You can see the areas that we are tackling. It will give us a business that is much, much more scalable than it is today.

James?

It's James Shuck from Citi. I just wanted to ask about the Google Cloud relationship. It's a multiyear relationship and up to this point, it's really been focused on kind of efficiency gains and underwriting. With the pace of change that we're seeing, it's not clear to me what else they can bring to the table, the larger language models that are emerging, whether it's agentic AI. Since you kind of started that agreement, sort of what are your views on how far that relationship can develop and what else can they bring to the table? We start to use unstructured external data? Where else can it be applied to? That's the first question.

And secondly, probably the only accounting question today. But on Slide 51, just interested in the reinsurance receivables, which remain very elevated. I presume some of that is COVID-related. In which case, I'm kind of wondering at this point why we haven't reverted back down to the 10% average that we've seen prior to COVID? If we did see that 15% reinsurance recoverable come back down to the 10%, does that have any implications for the solvency?

Okay. So I think the accounting one is directed to you, Paul. So in terms of Google Cloud, et cetera, look, we have strong and deep relationships with a number of, I guess, leading software and cloud companies, including Microsoft and Google. Look, they -- those partnerships extend to a range of different factors. So firstly, we have a lot of our applications and software on the cloud. And I think with the advent of gen AI and agentic e-commerce, et cetera, I don't think that's going to change.

Those are facilities that frankly, those 2 companies and others invest billions and billions of dollars in, in terms of making sure they're high-tech secure, et cetera. Where else do we use the skills of those companies? Those organizations have tens of thousands, if not hundreds of thousand software engineers. And what they can help us do is accelerate the journey that we're on. Now what do we bring to the party? I said -- the thing that we bring to the party are kind of 3 things. One, we have invested significantly in our technology over the years. This is not something new to us. It's already within the P&L. You can see it.

We have spent years gradually cleaning up our data. It's never perfect, but it's in pretty good condition. And the third thing is ambition and culture. So we have a culture that's a business builder culture. So we're looking for new opportunities. We're continuously experimenting. So we use the state-of-the-art AI tooling these days that they are bringing, but we already have a system where we can integrate it and build it and start to develop real use cases within our business.

So for instance, in our London market business, they're using, was it Google X, which is, again, one of the divisions within the Google business. And we're using some of the technology there to help us underwrite some of the risks in the U.S. and the property risks in the U.S. with some really, what we think is high-quality, very granular data with a very long history.

We're using these organizations to help build some of the base technology for the new powerful portals. Now once we build those, we can do a lot of things ourselves. So that partnership, I think, will continue. The shape of it, of course, evolves over time. But the key thing they bring to us is capability and acceleration of our own ambitions, which we can then amplify with our own capabilities.

Yes. And then I think on reinsurance recoveries, I think it's sort of multifaceted. I think the first point is around actual reinsurance collections that are COVID related have gone very, very well. We're very happy with that perspective. I think what's happening and what you can see in terms of the recovery is versus, let's say, 10 years ago is book mix.

So one is it's going to be much more shorter tail business 10 years ago than it is today. But also think about the re and -- well, now re-mix, so the third-party capital is obviously greater than it was 10 years ago, and therefore, you've got a natural level of additional recoveries on the balance sheet that you'd have a decade ago. So I think that's that in terms of implications for solvency I mean as that comes down, obviously, the credit risk charge comes down. It's pretty modest in terms of our overall sort of capital. It's not a big driver at all, but clearly, there will be a modest benefit as that comes down.

Okay. Vash?

This is Vash Gosalia from Goldman Sachs. I have 2 questions. One on the retail business. So you've announced or you've delivered 6.3% constant currency growth in '25. But at the same time, you've had benefit on the rate 2% and then policy count of growth of 7.5%. So could you just help us square those numbers as to -- and I'm guessing the difference comes from mix shift, but then where exactly or which product line is it that you grew in or what geography and maybe how are each different from the other? That's the first one.

And the second one, just on reserves again. Trying -- so honestly, we were a bit surprised by the reserve release that we saw in the second half. So could you unpack as to where those reserve release have come from, either accident years or any particular events that you saw improve?

Okay. So Paul will comment on the reserve releases. In terms of retail, I think you hit the nail on the head. It is entirely mix. So yes, we did receive -- we did see a 2% rate accretion across the retail portfolio and 7.5% increase in policy count within the 2 big kind of segments are the digitally traded business, so largely direct and through partners. There, the average premium is kind of $1,000 or slightly less. That is simply growing faster and therefore, adding more policy count than the broker business. I think as you would expect, healthy growth in both, but the digital platform is growing a little bit faster.

Yes, just in terms of reserving H2, it was basically all years, you could see actually on the chart, all years and all segments, so really across the business. I think it comes back and we can't state enough that this is a manifestation of conservative reserving -- conservative loss picks. So if you're strong on the way in, clearly, you're going to be strong on the way out from a redundancy perspective, and you can see that in all of those years trending down. And Aki is right, you sort of bear in mind that point about strong releases are a manifestation of increasing redundancy.

Okay. Ben and then Kamran.

Ben Cohen, RBC. I had 2 related questions. Firstly, could you say how much kind of good fortune was in the result in the second half of the year because that's quite hard to unpack? And secondly, when we look at the rate declines that you've announced for January renewals, how should we think about that in terms of -- how that's likely to feed through into the combined ratio over the next couple of years?

Okay. In terms of good fortune, well, we all need some, I think. And I think Jo will kind of provide a bit of commentary on that. I guess my overarching comment is we've not received any more good fortune than anybody else, so we're very pleased with the outcome, but Jo will comment on that.

In terms of rate declines and how that might impact the combined ratios and so on. Let me kind of just kind of deal with that. Again, just for completeness, retail business, we continue to forecast 8% growth and a combined ratio within the 89% to 94% range and with a gradual improvement within that range as operating leverage and the efficiency program continues to deliver.

In terms of our big-ticket business, look, it's -- the eventual combined ratio will be a factor of many, many things. I think the key thing I would ask just kind of bear in mind is if you go back to Jo's slide on rates and the quality of the portfolio, the majority of the portfolio, both for reinsurance and London market is in a very, very good place. So -- and therefore, the potential for strong earnings growth or earnings in 2026 remains pretty high.

Yes. Thanks, Aki. So absolutely, I think when we look at the year as a whole, there was still $120 billion of industry losses. We started January with the really tragic events in California. We ourselves reserved $170 million for that event. Majority of that was in our reinsurance. So of course, when we talk about the sort of benign second half, yes, absolutely, that particularly the North American wind season was more benign.

And so looking at the totality of the year, it was still a pretty active year. I think the thing that I always look at, though, is the underlying because the wind can blow or not. And clearly, we respond. But actually, it's the underlying health of the portfolio. And so looking at the attritional loss ratio, looking at the risk loss ratio. And across all of our segments, whether that's London market reinsurance and indeed retail, all within expectation. And that for me is the real health of the portfolio is that attritional loss ratio. So yes, pretty pleased with that underlying claims performance being within expectation.

Thank you, Jo. And Kamran.

It's Kamran Hossain from JPMorgan. First question is on retail. So clearly, kind of 9 months into the new strategy, the new plan, things seem to be going very well. Just trying to work out whether actually your historic kind of retail combined ratio range now probably looks quite conservative. If I think of the tailwinds you've got this year seems to have gone quite well. You're clearly very excited about the potential benefits from AI. You probably should have taken a point off that range anyway for DirectAsia last year.

If I assume a lot of the expense savings come into that, it feels like the historic range seems a little bit cautious. You're 9 months in, so I understand that. So just interested in whether you feel kind of more or less confident on delivering maybe outperforming that number at some stage.

The second question is on share buyback versus dividend. Clearly, the step-up in the buyback was great. I think it reflects the confidence you have in the business. At some stage, do you expect to change the mix between dividend and buyback? Because at the moment, I think it's not unlike peers, but at the moment, the buyback is quite a lot bigger than the dividend.

And one last question. I know we talked about AI and data centers. We didn't talk about data centers in space, but that's probably for another day. But what's the -- there's clearly going to be product demand for AI errors, admissions, hallucinations. What are you seeing in the market for that at the moment?

Okay. Very good. Thank you, Kamran. So in terms of underwriting data centers in space and AI hallucinations, et cetera, and how we deal with it from an underwriting perspective, Jo will cover that. In terms of share buybacks versus dividend, Paul will cover some of the detail. But suffice to say, I think certainly for the moment, we are very happy. And I think we -- again, we -- this is all about balance. I think we're striking the right balance in the form and quantum of capital return that we're providing to shareholders and balancing that against also the investment that we're putting into the business for both near- and long-term growth.

In terms of the retail core, the guidance is 89% to 94%. We expect to improve within that range. We have ideas where we have been at the upper end of that range. We are providing guidance that we expect over the next few years that we will edge towards the lower end of that range as the business continues to grow and deliver operating leverage and the expense efficiency program and the build-out of capabilities that Paul has laid out delivers. But why don't we go to Jo first on data centers in space. And then Paul, any more color you want to add to that.

Yes, absolutely. I think I'll focus on the AI part.

Well, that was the core of the question.

Look, we talked a lot today about our own use of AI and maybe our customers' use of AI. But just to be clear, we have just as much thought going into how our customers are using AI and that's going to change the nature of the risks that we insure. So this absolutely is an emerging risk. There's going to be some areas of risk that actually gets better because some of it is still driven by fat finger and actually with an AI that is more consistent in terms of decision-making, maybe some of those errors and emissions actually improve. But there's definitely new areas of risk for sure.

And we're being really thoughtful about that. Certainly, from our point of view, we're not going down the route of blanket exclusions. We're being really thoughtful around the risks that they present, understanding those risks and then indeed accommodating those risks, either pricing for them or providing sort of affirmative coverage. So a good example would be in our U.K. portfolio and our technology. We were one of the first to confirm affirmative AI coverage within that policy.

I think the other area that we think about is not just the risk, but actually the opportunity. So we are an insurer, a specialty insurer for emerging economies, for new economies. There's a lot of people. There's a lot of investment in AI and data centers and that attached to this digital world that all need insurance. And we're really well placed to be able to provide insurance for the consultant who happens to be in that AI world. So we're also thinking about it from an opportunity point of view.

How do we understand the risk, how do we develop our own products and services to help our customers with that risk and then also how do we broaden our appetite to capture some of this more new economy in terms of their own insurance needs. But yes, a lot going on, on that space internally.

Yes. Thanks, Jo. And so the nature form structure of capital returns fits squarely within the capital management framework. So we will prioritize growth. We'll maintain a strong balance sheet. We'll have a progressive dividend. Now you've seen that we've increased our final dividend per share 20% in each of the last 2 years and then have a progressive dividend thereafter. When we've done all of that, then the surplus that's left after that will be returned to shareholders, and that remains the condition.

Okay. Chris?

Chris Hartwell from Autonomous. Just 2 very quick questions, hopefully. First of all, just on the recent reorganization within Hiscox Re, I was wondering if you can talk about what advantages you think that brings? And in particular, on Hiscox Capital Partners, where would you like to see the fee element of Re going over the next few years and particularly if it's the right time or a good time in the cycle to be doing that?

And then it's probably my lack of understanding or lack of knowledge rather, just on tax and Bermuda. A lot of your Bermuda peers have been sort of talking about the tax credits that they will accrue from the recent tax reforms in Bermuda. And I guess sort of 2 parts to the question. First of all, if you could help me understand what is your, I guess, on island expenses or headcount or something where I could sort of think about that? And if there's anything you can do to to really take advantage of that?

Okay. In terms of Bermuda tax, Paul will cover that. In terms of Hiscox Re and the sort of reorganization to create Hiscox Capital Partners. Look, as you know, we've had a long-term strategy using third-party capital that wants to access, frankly, the fantastic underwriting capability of our Hiscox reinsurance business. And we've had a number of different sort of verticals. We've had traditional capital in the form of quota share providers, partners rather. We created ILS funds just over sort of 10 years ago, and those have evolved. We have a number of ILS funds with different sort of risk levels.

We have an SPV. We have sidecars. We've also then expanded into cat bond fund capabilities. And frankly, the Re and ILS was a nomenclature, which no longer describes what we actually do. It is much more mature and much more sophisticated in terms of the different capital basis that we're managing. And that's a reason for -- first reason for kind of using the new nomenclature.

And in terms of -- at this point in the cycle, we are -- frankly, last year and this year, we have seen increased interest in third-party capital coming in to benefit from our underwriting. I think you heard from Paul earlier, the AUM, the one thing we quote, which is ILS AUM has increased from, I think, $1.4 billion at the start of last year to $1.5 billion at the start of this year, albeit that deployable capital has gone up a little bit more because we had some outflows and then some new money coming in.

In terms of fees, again, as you heard from Paul, the last 3 years of fees have been in excess of $100 million. So a nice contributor to the reinsurance business and to the overall group. The fees are structured essentially, as you can imagine, two-fold. So you have a fixed component and you have a profit commission component. And over the last few years, because of the underwriting results, the profit commission component has increased quite significantly, getting us to over $100 million.

What we have done actually over the last couple of years is also gradually restructured some of those fees. So now the majority are fixed. In terms of where that fee income will go, well, there's 2 major drivers. One is the quantum of third-party capital that we're able to deploy. And I think that is going to grow. So that will kind of push the fee income up, but then it's down to the actual results. Whilst the majority is now fixed versus PC, profit commission. The PC is still pretty significant, and that will be determined by the outcome of in-year results. Paul ?

So yes, the Bermuda-based tax credits, I mean, they're small, they're sort of single-digit millions. They're absolutely dwarfed by the introduction of the global minimum tax this year. And you can see that our tax rate has gone from 8.5% to like 17.6%, so that's a big uplift. What can we do more in order to sort of maximize that benefit? Essentially employ more people on Ireland that don't need a work permit. That that's the sort of driver that will trigger more benefits. The reality of it is, it's caped at around 150 people. So there is a limit to sort of how much additional benefit you can get out of that. That's the biggest driver for it.

Okay. I think we're done. So guys, thank you very much. This is a time of change, right? I think it's time for the nimble and the bold and those who can really turn imaginative ideas into operational reality. And I think that describes the culture and capabilities at Hiscox. These are really exciting times for us. So thank you very much.

Hello and welcome everyone to the Hiscox Q3 2025 trading update with Paul Cooper, Hiscox Group CFO. My name is Becky, and I'll be your operator today.

[Operator Instructions]

I will now hand over to your host, Paul Cooper, to begin. Please go ahead.

Good morning everyone, and welcome to our Q3 trading update. I'm Paul Cooper, Group CFO, and today I'll cover growth, our change program, progress, claims, and investments. After that, we will turn to Q&A.

The Group's diversified business model is delivering compounding growth in retail and high-quality opportunities in big ticket. This provides us with the capability to grow profitably through the cycle. The Group's ICWP is up 5.9% year-on-year to over $4 billion, with all three business segments delivering growth as we execute on our strategy.

The multi-year momentum in retail continues, with the business on track to achieve constant currency growth in excess of 6% for the year. In big ticket, we remain focused on underwriting excellence in risk selection and disciplined pricing. London market has won attractive opportunities in a competitive market. In Re & ILS through disciplined capital deployment, we have delivered net and gross growth.

Let's dive into this by segment, starting with retail. Retail ICWP grew 7.3% in US dollars. In constant currency, this was 6.1% for the nine months and 6.3% for Q3 discrete, driven by customer volumes in all markets as rate remained steady at 2%. In the U.K., constant currency growth of 8% was underpinned by investments in technology, our award-winning brand campaign, and the many large distribution deals we have won over the last two years. Our European business delivered constant currency growth of 7.1%, driven by double-digit growth across our two largest markets, Germany and France.

In the U.S., US DPD grew by 6.7%, underpinned by continued double-digit growth in digital direct. Digital partnerships grew mid-single digits as the team works to build momentum from new and existing partners through targeted incentives and further enhancements to the sales journey. U.S. broker premiums reduced by 1.2% due to a slower rate of new business growth in some classes of business. This trend is expected to reverse in the fourth quarter as a strong pipeline of growth opportunities is developing. With growth at 6.1%, new business growing at double digits, and momentum building across retail from distribution deals, brand investment, and new technologies, Hiscox Retail is well on track to deliver constant currency growth in excess of 6% for the year.

Now moving on to London market. ICWP increased by 2.5% as the business found opportunities in a competitive market. In aggregate across the portfolio, rates are down 4% year to date, and we are maintaining discipline and managing the cycle. This includes areas such as major property and commercial lines where rates are down double-digit, and in casualty where cyber and D&O rates have reduced for the third consecutive year.

Nonetheless, we have been selective in finding opportunities for good quality growth, for example, in our energy construction and portfolio deals in property. We're also expanding into new opportunities such as U.S. middle market property, SME cargo, and FI, leveraging our existing expertise and tech capabilities to access new markets. Hiscox Re & ILS achieved net ICWP growth of 7%, driven by growth in specialty lines as we execute on our strategy to diversify our portfolio in a transitioning market. ICWP growth was 6.5%. While rates have reduced 5%, the business remains well rated, with cumulative increases of 83% since 2018. Attachment points and terms and conditions have broadly held. ILS AUM was $1.3 billion at Q3, and we see a robust pipeline of potential investors ahead of 2026 renewals.

Turning to our change program, we continue to make good progress and remain on track to deliver our full-year targets. Developments in the third quarter include the selection of a new IT services provider, giving us access to an advanced service management platform that will automate and streamline business processes. The signing of an exciting multi-year collaboration with Google, as well as further enhancing our claims fraud and recovery capabilities.

Turning to claims. Claims experience for the Group has been well within expectations in the third quarter. This has been underpinned by our underwriting excellence and further complemented by a largely benign experience from natural catastrophe and large man-made losses. This experience and the diverse earnings profile of the Group have resulted in strong capital generation continuing in the third quarter.

In terms of investments, the net investment result is $350.8 million, representing a year-to-date return of 4.2%. This has been driven by strong coupon and cash income and mark-to-market gains. The reinvestment yield on the fixed income portfolio is 4.2%, with a duration of two years. The Group's short duration and high-quality fixed income portfolio positions Hiscox well.

To conclude, all three segments are growing. Retail momentum continues, with the business on course to deliver constant currency growth in excess of 6% for the year. Our change program is on track. In terms of capital, capital generation continues to be strong. We have completed 65% of our $275 million buyback. Our final 2025 dividend per share will increase 20%, subject to final ratification by the board. As usual, the board will consider any surplus capital returns ahead of the full-year results. This concludes my opening remarks.

I will now hand over to the operator to start Q&A. Operator, over to you.

[Operator Instructions] Our first question comes from Will Hardcastle from UBS. Your line is now open. Please go ahead.

The first one, you mentioned there on the call a favorable claims experience within the quarter, and it's really clear on the NatCat and man-made, they were benign. I guess my question is really aimed, are you also suggesting the underlying was also really favorable as well? Or am I perhaps getting carried away there?

The second question is on investment AUM. This grew 6% quarter on quarter, equivalent to $0.5 billion. I guess there's possibly a little bit of FX and some market moves in there, but just trying to understand the drivers of that underlying growth. Maybe it might be helpful to get a sort of a stable run rate, ex-market moves and buybacks, etc., that's lined up with your growth plans.

Yes, just in terms of the underlying, as you said, the sort of cat and large were well within expectations. I think from the sort of more underlying loss performance, it was in line with expectations. So nothing significant to report there. And then in terms of the investment AUM, I think there's a sort of number of moving parts there. So firstly, just this premium growth clearly adds to the pool of investable assets. Obviously, we had a strong level of capital generation in the third quarter. And another aspect is just timing of reinsurance receipts from reinsurance recoveries. So there were a number of larger reinsurance recoveries that just added that up.

And I think sort of looking forward to what's a run rate, I think it's quite difficult to sort of predict, certainly on a quarter-by-quarter basis, because you've got moving parts of sort of premium income. Clearly, if you look at, say, for example, reinsurance, that's weighted towards the first half of the year. Then you've got sort of absolute levels of claims and timing of that. You have just got timing of receipts, along with capital returns. I think it's, I don't think there's a good rule of thumb.

I think the important aspect to sort of bear in mind is we have a compounding retail business that, as we've outlined, have ambitions to get to double-digit growth in 2028. As a consequence of that, you should just naturally see an increase in AUM over time as that compounding growth occurs.

Our next question comes from Kamran Hossain from JPMorgan. Your line is now open. Please go ahead.

Two questions for me. The first one just on the capital side. It sounds like, I guess, surplus capital has been generated in the third quarter. Could you just maybe re-outline kind of what your priorities are for that? My sense is that we probably get another buyback or something along those lines just to kind of re-outline those priorities on capital.

The second one is just on the Google Cloud collab. I think the AI-driven underwriting partnership has grabbed a lot of headlines, but what can the Google Cloud collaboration bring to the business? Is this just cost savings, simplicity, etc.? What else does this bring?

Yes, so in terms of capital, you're right. Capital generation has been strong in Q3 and indeed really for the first nine months of the year, both from an asset side of the business, but also from an underwriting perspective. Just in terms of the sort of capital management framework, I outlined that in May as part of our Capital Markets Day, and really the priorities are, first and foremost, we are a growth business, so deploy capital for the growth. Secondly, maintain a strong balance sheet in the context of the 190% to 200% operating range that we expect the BSCR to be within.

Thirdly, pay a progressive dividend. Now, as per my opening remarks, you'll see that we've already committed to increasing the final dividend per share by 20%. And then lastly, once we get through that, and clearly this will be a consideration for the year-end results, we'll be determining what levels of surplus to return to shareholders. But I hope that you and others would take away from our actions at the half-year where we increased the buyback by $100 million that we've got no desire to hold on to surplus capital unnecessarily. So that's the sort of capital question.

In terms of Google, we're very excited around that collaboration. It's a multi-year collaboration arrangement. And what we've seen is the benefits really in that sort of augmented lead underwriting arrangement on sabotage and terrorism, where we drove submissions in terms of timing from a turnaround time of about three days to certainly around three minutes. That's something that we are certainly looking to accelerate into other parts of the business and taking components of that where we can deploy it into other lines.

For example, one of the markets that we've accessed this year is middle market property, and we've been growing that in London market. Now one part of our ability to do so has been partnering with Google to cleanse data using AI and, again, accelerate the submissions process as a consequence from that. I think you'll see really two main drivers. One is a growth enabler, similar to the sabotage and terrorism and the rollout in mid-market property, and then just generally looking at their technological expertise to drive efficiency into the business.

Our next question comes from James Shuck from Citigroup. The line is now open. Please go ahead.

Paul, I just wanted to return to your comment on the claims environment. Just reading the release, it sort of mentions claims experience being well within expectations. And then you say it's been complemented by a largely benign loss experience from NatCat and large man-mades. That implies to me that the attrition was actually better in Q3. But I think in answer to Will's question, you said that it hadn't been. It was more or less in line. But perhaps you could just clarify that point for me, please. That's the first question.

Secondly, on U.S. Broker. You mentioned it slowed down in U.S. Broker in Q3 in specific lines. And that was expected to reverse in Q4. Could you just shine a little bit more light on what those specific lines were and why you expect them to reverse in Q4?

So just in terms of the claims, yes, well within expectations. Nothing substantial to report from a large or cat in Q3. And really, I think the point that we're making around the underlying business, it's in line, but that in-line performance is good. So at the capital markets day, you'll recall that we put out our loss ratios for retail, for example, have been mid-40s for the past 10 years and that they are market-leading. That's very much continued into the third quarter. So just to put a bit more color on that there.

And then in terms of U.S. Broker, I think what we've seen, and it's interesting, is the trend has been improving over time. So the U.S. Broker business two years ago was shrinking minus 7.5%. Last year, it was minus 4%. And now we're at minus 1.2%.

There's a couple of lines of business that have been affected by uncertainty around tariffs. Entertainment has been one to call out, for example. If I look across and look at the sort of management actions that we've taken to drive that trend line up, we've done and made significant efforts around streamlining submissions. We've deployed AI to, again, triage the submissions so that we can return submissions and responses back to brokers in a more effective and faster fashion.

We've also automated the -- or made improvements to the auto-renewals process in those areas. I think the sort of minus 1% that you've seen us report at Q3 really amounts to about $2 million. In the context of a $2 billion retail franchise for nine months, you can see it's pretty immaterial. That $2 million is about four or five risks of larger retail risks on the broker side. That really is dependent on which side of the quarter it falls. Sometimes it will fall in September. Sometimes it will fall in October. So the pipeline that I can see ahead of us for Q4 is good. And I expect momentum for U.S. Broker to improve as we enter sort of year-end.

Our next question comes from Andreas van Embden from Peel Hunt. Your line is now open. Please go ahead.

I just have two questions on Hiscox Re, the reinsurance business. You mentioned that there's sort of a strategy to diversify the portfolio. I think at present the portfolio is 2/3 property, cat-weighted, and 1/3 specialty. Is there a targeted mix you want to have in a few years' time as we go through the soft cycle in terms of lowering the exposure to property cat and increasing specialty or perhaps even casualty? Is there sort of a target strategy there?

And the second question is on your gross-to-net premium strategy. The last few years in the hard market, do you have retained more of your reinsurance premiums net? And the top line has been sort of relatively flat on a gross basis. I just wanted to ask the cycle to sort of show signs of softening into 2026, whether that retention policy will reverse in due course.

The answer to both of those has its roots in very strong cycle management. If I look at reinsurance, we, as you've highlighted, have a significant property cat component. And although we've said that rates have come off 5% year to date, that market remains attractive. I think it's more a question that, from a property cat perspective, in the last five years, we've doubled the net premiums we've written as we've lent hard into that hard market.

So I don't expect, under the sort of current conditions to grow our property cat exposures significantly into 2026 on the basis of the current rating cycle now or the rating conditions. Clearly, we've got a couple of months to go before 1-1. But we have been diversifying into specialty lines. We don't write casualty reinsurance. I think we should make that clear. But where we have seen growth are areas like cyber, mortgage, and crop, for example, is where you've seen us grow into those areas where conditions are attractive and that business is attractive.

In terms of the gross-to-net strategy, it is, again, very much dependent on where we are in the cycle and the market conditions. You're right to highlight that our business and our ability to attract third-party capital is strong, not only from an ILS perspective where we report the AUM, but also from a quota share reinsurance perspective. And what we have done in more softer market conditions is really ramp up the level of session and retained far less, I think the mix was more 20% retention in the depths of the soft market versus a harder market where we were around 50%.

So I think the benefit of that model really enables us to capture fee income, both on a fixed volume perspective, but also from a profit commission perspective. And if you look at the fee income that Re & ILS generated last year in what were very good conditions, it was around $120 million. So that is a decent contribution to the bottom line.

Our next question comes from Chris Hartwell from Autonomous. Your line is now open. Please go ahead.

So a couple of quick questions. First of all, on retail Europe. You mentioned double-digit growth in France and Germany. I think you say that Netherlands has some issues. So I'm assuming that's a large part of the sort of difference between double-digit growth in France, Germany, and the overall growth of retail Europe. So I was wondering if you could maybe sort of quantify what's going on in the Netherlands and how long you think this will last.

And second question just on London market. So you talk a lot about sort of innovation in the London market book. And I was wondering if maybe you could just sort of help provide some examples on what you're doing there that's really exciting you and how much of a lead does that really give you over the competition in the market?

So, let's deal in with retail in Europe first. You're right. If you take about the composition of the portfolio, around 60% of Europe is. Composed of our two largest countries, France and Germany. And as you say, those businesses in aggregate have continued to drive growth of double-digit. Netherlands is an interesting example, and that's had more subdued growth in the third quarter. Now, the driver of that is really a change in tax law. And it's akin to IR35 that was introduced into the U.K. several years ago. And what it did is it just has a greater focus on freelancers and sole traders, which you'll know is kind of a core target market for us at that nano and micro end of the SME commercial insurance sector.

And in essence, what it has done, again, similar to the U.K., has driven more of those freelancers, single person employers into corporate employment. Now, if you look at the sort of U.K. example. The growth bounced back or the consequence of that bounced back in the U.K.. So we would expect that to happen. But also, I think there's been some very strong vocal opposition in the Netherlands to that change in tax law. And I think that there is an expectation that there'll be some changes again in consequence of that opposition that we're seeing. And so we'd expect 2026 for that to be ameliorated. So that's the sort of Netherlands perspective.

In terms of London market, yes, I'm very excited around. The innovation that we're seeing there. I think one of the things that we've seen is the technology capabilities that we have in retail has been exported. That expertise and capability has been exported into London market. And it's giving us access to new growth opportunities that we wouldn't have otherwise seen. So the first aspect is the sort of augmented lead underwriting in sabotage and terrorism. I think around 2/3 of that business is now subject to the augmented underwriting. So we have industrialized that proof of concept this year.

And then what we've also seen is deploying and utilizing some of that technology into the middle market property that we can access and we're seeing good growth in that market.

And it gives us an edge because we can turn around submissions faster using that technology than, let's say, a purely manual process that others may have.

I think the last aspect is in marine cargo, where we're using APIs to basically digitally underwrite, quote, and bind the risk near instantaneously. And again, because of the sort of size of the average premium in that small marine cargo end, we wouldn't have typically seen that business come to Lloyd's. And certainly, there's a question mark about whether we could have underwritten it economically.

So, there's a couple of examples, but I do expect us to continue to innovate more broadly, not only in London market, but across the group. If you look at sort of what we've done in terms of the AI submissions process, that's an area that improved productivity in the U.K. by 40% in December last year. And we're rolling that out to Europe and U.S. and the U.S. broker, as I've mentioned.

Our next question comes from Vash Gosalia from Goldman Sachs. Your line is now open. Please go ahead.

I have two questions, and both of them related to retail. One is on the, just thinking about retail as a segment, you're currently growing at more than 6%, but you obviously aim to reach a double-digit growth. Can you just help us understand how much of this acceleration from 6% to double-digit is dependent on U.S. broker? Because it feels like over the last few quarters, U.S. broker channel has been a bit more volatile than you would prefer. But let's say if the drag continues, do you think you would still be able to accelerate to the double-digit growth? That's the first question.

The second one is, again within retail, but just looking at U.K., could you help us understand how much of U.K. is driven by the special distribution deals or how much of the retail U.K. is just partnerships to get a color of where the growth is really coming from?

Good questions. So. Let's just orientate. So in terms of the third-quarter performance, the standalone growth for retail was 6.3%. So clear momentum off of the 6% that we reported at the half-year. Now. It is broad-based. And what I would say is, the U.S. broker component is probably the smallest area of the retail franchise and indeed is probably one that we expect to have, let's say, the lower growth opportunities versus the other areas. So US DPD is an area that we'd expect to grow far stronger. Europe, as you've heard, apart from the sort of anomalous Q3 with Netherlands, has been growing in that double-digit territory, and the U.K., momentum is clearly positive. So that's gone from 4.4% to 6% to 8% in the three quarters. So you can see that trajectory and momentum that's been built off of the U.K..

I'd say that what we've done over the last two years is really introduced a significant number of management actions across all of the businesses. And you would have seen. The summary of that in our capital markets day that was led by each of the CEOs, where they've outlined plans to go deeper in their existing chosen segments, but also expand using propositions, more marketing, and growth in new products, new geographies, and new customer segments. And so I'd expect that to continue.

The U.S. broker, I've just sort of re-emphasized the point about the trend is up. The minus 7.5% to minus 4% to minus 1.2% clearly gives you a decent indication of the trend line. And we've just completed our business planning process. It needs to be signed off at the board this month. But clearly, we have a path to double-digit growth, and I'm confident that we'll get there.

So I think in terms of the sort of individual components, and you asked about the U.K., I'd say that, and it's actually true of all of the retail businesses, but it is volume-led. It isn't dependent upon for the U.K., these distribution deals. It really is an element of growth in the underlying through the improvement in brand. Our brand awareness has gone up something like 50 percentage points over the past two years as we've refreshed the brand in the U.K.. We've got much more productivity. So we are the only high-net-worth product on the actuary system that's distributed digitally to brokers.

And I've talked about the AI tool that we launched in the U.K. late last year that's driven productivity up 40% with no change in headcount. So I think hopefully that gives you a flavor. But importantly, one of the reasons that we can do these distribution deals is the strength of the brand and the strength of our specialist product mix. Without that, I'm sure that we wouldn't be able to be, sort of, front and center of brokers' minds from winning these deals.

Our next question comes from Shanti Kang from Bank of America. Your line is now open. Please go ahead.

So just on the renewals into the one-one. Given that we've seen accelerated price softening in the numbers today, how are you guys thinking about the positioning into the upcoming renewal period? Are there any pockets that you might grow or shrink? So just having a characterization of the market would be very helpful. And then in Re & ILS, growth was up even though pricing was down 5%. Could you just help us characterize the levers driving that growth? Are there any pockets that you really accelerated in? I think you mentioned property, but just understanding what's really going on behind that kind of 6% increase would be helpful. And that was it.

Yes. So reinsurance, really, I think sort of, it's a reinforcement of the points that we made to Andreas's question. So we are being disciplined in terms of cycle management. You're right, we've seen rates come off this year. But I'd sort of direct you back to our half-year presentation. So rates have gone up since 2018 in the reinsurance space by something like 80-something percent. So very strong. And Joe articulated the rate adequacy on one of her slides in terms of, I think, in excess of 90% of the business is rated adequate or adequate plus from our perspective. So we've got a portfolio that is very attractive.

I'd say that market conditions, yes, rates have come off, but they remain very attractive, our management in Re have said this is something like the fifth best market in the last 20 years, to give you a sense. So it's still an attractive market to write in. In terms of our appetite, I mentioned that I don't expect to grow Re from a property cap perspective significantly given where the rates are. But we have seen attractive opportunities in specialty. And as I've said, we've sort of grown in areas like crop, mortgage, cyber. They continue to be attractive. We think that there are more opportunities there to go after. So generally, that's the sort of outlook and outline. Clearly there's sort of six weeks, seven weeks to go. So let's see how the rating environment develops from now to there.

Our next question is from Abid Hussain from Panmure Liberum. Your line is now open. Please go ahead.

Just two questions. The first one is actually just a follow-up on the previous question. It's just on the pricing outlook beyond this year and just focusing on the big ticket lines. It looks like the headlines are sort of slightly misleading in terms of people focusing in on rate declines because, as you've just suggested, actually, cumulatively, the rate is pretty attractive, actually, and fifth best in the last 20 years over the Re & ILS. So can we sort of characterize more broadly from the outside? It looks like pricing is still highly adequate. You just said 90% are rated adequate or adequate plus.

And then sort of drilling down a little bit deeper in terms of T&Cs, we're hearing sort of T&Cs holding up pretty well. Pricing is actually holding up pretty well outside of property cat. Is that sort of fair characterization just at a high level? That's the first question.

And then the second one is your pivot to retail. So having embarked upon your change program, is there any early wins that you might point to your ability to successfully pivot into retail? I think the Google example is a good one. Is there any other examples that you can share with us?

So a couple of questions. I think you've really hit the key points for me. The market remains attractive. Terms and conditions have remained firm from what we've seen. I think there's a really strong -- by the market and the market commentary, what I've seen, a strong desire to hold firm on those conditions and not concede in terms of attachment points or loosening up the overall conditions. I'd extend the point to London market. I've said we are disciplined underwriters, and the attractiveness of the portfolio isn't just confined to reinsurance. Again, if you go back to the half-year, you'll see that. I talked about the sort of reinsurance dynamics, both about rate strength since 2018 and more than 90% of the portfolio being plus or adequate plus. The London market equivalent is something like 67% up since 2018. And the portfolio rated adequate, adequate plus is something like in excess of 80%.

So we're coming from a real position of strength, and that's led us to five or more years of combined ratios in the 80s for London market as an example. I think what it does show, given the market condition that you're seeing and a general softening, I guess, in rates for big ticket is our diversified model and our ability to access risk gives us the ability to compound the retail growth. You've seen that with our guidance of six plus and our confidence in moving towards a double-digit growth in 2028, but also the innovation that enables us to access risk in the big ticket that we talked about earlier. So I think those are real positives.

I think in the change program, I'd say that it remains on track. It is highly complementary in terms of the overall strategy to drive productivity and efficiency into the group. And so we've seen real benefits around consolidating IT suppliers. I'm excited about the new IT service management that not only provides sort of, let's say, help desk ability, but also enables us to improve processes and systems at the same time through more automation. So there's an example. And I talked about sort of AI. So there's a big drive that the sort of accelerated change program, as well as delivering to the bottom line will really be enabling further growth and further productivity.

[Operator Instructions]

We currently have no further questions. This concludes today's call. Thank you for joining us today. You may now disconnect your lines.

Well, good morning, everyone, and thank you for joining us today. Now it feels like it's only been a few weeks because it has only been a few weeks that you heard from us at the Capital Markets Day. But today, we're here to update you on our first half performance and the progress we're making on executing our strategy and achieving our ambitions. Now turning to our business performance. Well, the market conditions are evolving, and we're once again seeing benefits of our diversified business model. We've added $160 million of premium in the first half, capturing opportunities across each of our businesses, and we're growing profitably, achieving a robust combined ratio of 92.6% in a period which included the highest ever losses from wildfires.

Now the diversity of our business model and execution of our strategy is leading to strong returns reflected in the group operating return on tangible equity of 14.5%, in line with our mid-teens target. These strong returns are delivering attractive growth in net asset value per share, which is up 15% year-over-year. And as you can also see here, over the last few years, the group has generated significant capital. The step-up in capital formation since 2022 is the result of strong rate adequacy in Big-ticket, a growing and increasingly profitable Retail business and higher investment returns.

Now the material earnings growth, in particular, the expanding revenues and profitability of Retail have enabled a step up in our progressive dividend twice in 2 years. We increased our final dividend per share by 20% in 2024, and we've committed to doing that once again this year. The significant profit improvements in Big-ticket have supported substantial special capital returns to shareholders with a $150 million buyback in respect of 2023 and a further $175 million for 2024, which is currently being executed.

This year, organic capital generation has once again been strong in the first half, supplemented by capital management actions signed posted during the Capital Markets Day. As a result, the BSCR is substantially above our target range at the half year stage. And whilst we are in the midst of the hurricane season, I expect organic capital generation to be strong in the second half. The combination of organic capital formation and capital management actions create the flexibility to take further steps to improve our balance sheet efficiency and reward shareholders now. So we have announced a further $100 million special return of capital through upsizing our previously announced share buyback from $175 million to $275 million. And Paul will provide more detail in a moment or 2.

Now we expect the group to be in a strong position at the end of the year when we make our forward-looking capital allocation decisions. And we will apply our normal capital framework, prioritizing high-quality growth balance sheet resilience and our commitment to a progressive dividend. So now turning to each of our businesses. As usual, I'll begin with Retail. Our premiums are up 6% in constant currency, continuing the trend of accelerating growth year-over-year. U.K. growth has increased to 6% and having just signed our largest distribution deal in recent times and continuing to build share in specialist niches, the business is well placed to build on this momentum. Our European business continues to grow strongly with a positive outlook, as you heard at the Capital Markets Day, driven by product innovation, tech-enabled distribution and geographic expansion. Momentum in the U.S. is building with the strongest half yearly growth since 2019.

The Digital Direct business continues to grow by double digits, and partnership momentum is improving. In U.S. broker, the contraction has been halted. This is despite pressure from macroeconomic uncertainty, delaying new business flows into a couple of our larger classes of business, such as entertainment and architects and engineers. The cadence and the intensity of our distribution platform continues to increase. This, combined with the momentum from recently on distribution deals in all markets, means we are on track to grow in excess of 6% at the full year. Now this positive momentum in top line is complemented by improving margins with the Retail undiscounted combined ratio at 92.7%.

Now let's turn to our London Market business. London market has returned to growth, driven by a number of factors, including a new high net worth property distribution partnership reported in alternative risk. We're also growing revenues in general liability and using the rate strength to manage line size, and we're benefiting from strong flows in energy liability and personal accident. Now overall, the London Market portfolio remains attractively priced. But with the rates moderating in some classes of business, we are managing exposures with our customary approach.

For instance, in D&O and cyber, where we've seen multiple years of rate reduction, where we are now reducing exposure. And more recently, in major property where rates have dropped 12% this year, we're walking away from some large account business. Now at the same time, excitingly, we're expanding into adjacent specialist classes business, launching new products such as financial institutions and tech E&O, where we have extensive experience in Retail, and this is now crossing over the London Market, where we write more complex clients. In addition, we're leveraging our tech capabilities, in particular, our technology platforms are helping us access new markets. And we're using this advantage to expand into SME cargo and U.S. middle-market property, where we see attractive opportunities.

Now moving on to Re & ILS. In Re & ILS, market conditions remain attractive, although rates have reduced from the peaks of 2023 and 2024. We have selectively deployed modest amounts of additional capital for the midyear renewals. And this, combined with inflows into the ILS funds and increasing quota share support has enabled our gross and net premiums to increase. And the business has achieved a robust combined ratio of 99.5%, absorbing the significant loss from the wildfires at the start of the year. And now turning to our growth initiatives. Across all of our businesses, we're taking action to capture profitable growth. You can see here a selective snapshot of these initiatives. Across both Retail and Big-ticket, we are responding to market opportunity and evolving customer needs by developing new products and propositions as we go deeper into our chosen sectors and expand into new segments, and Joe will provide more analysis on this in a moment.

On distribution, alongside winning new deals in each market, we're also leveraging the power of the group. For example, our London market and European business collaborated to gain access to a significant opportunity that otherwise would not have won individually. In addition to organic initiatives, we are selectively making small bolt-on acquisitions to expand our distribution enter new geographies and add new customer segments. As you know, we've now entered Italy through a small bolt-on acquisition of a digital MGA, enabling us to build growth through local knowledge, front-end technology and an established regional distribution team. And in the U.S., through a small specialist [indiscernible] bolt-on, we are accelerating our road map to expand our products and into new customer segments, such as technology start-ups and life sciences, while adding cutting-edge technology in the broker channel to complement our investments in U.S. DPD.

As you can see, many of these initiatives, particularly in retail, will go live in the second half of this year, mostly in the fourth quarter, reinforcing our confidence in delivering growth in excess of 6% in constant currency. Now looking at the progress of our Change Program, which was unveiled at the Capital Markets Day. But we are already seeing the impact and feeling the benefit of our Change Program. We're experimenting with technology applications in 3 key areas: firstly, in new business automation, in our broker channels; secondly, enhanced claims management; and third, improving productivity in operations. And this is in addition to augmented underwriting, which, as you know, is an area we've been investing in and executing and making progress in for a number of years. Now AI-enhanced new business tools have been deployed across the U.K., in Ireland Commercial and U.S. brokered cyber with positive early results.

We're investing in our claims, fraud and recovery capabilities. The actions we have taken to reduce fraud and improve third-party recoveries are already delivering significant benefits. And that's prior to the full implementation of the technology solutions. And we've launched a technology center of excellence in Lisbon to get the best out of our investments, reduce duplication and improve efficiency. And finally, we are delivering on our commitments. We are on track to achieve retail growth in excess of 6%. And as you've heard, we're investing in and making tangible progress in expanding product, distribution and geography and entering new customer segments. As these initiatives come online in the second half, growth momentum will continue to build. With an operating ROTE of 14.5% despite a record natural catastrophe loss in the first quarter, we are in line with our mid-teens target. We're also on track to deliver $25 million of operating efficiencies this year from our accelerated Change program.

And finally, capital generation across our business is strong, creating the flexibility to invest for growth and return substantial capital to shareholders. We've announced a 9% increase to our interim dividend, and we have previously announced a 20% step-up to our final dividend per share for this year. Our $175 million share buyback announced in February is being executed. And today, we've announced we're upsizing it to $275 million and intend to complete the buyback program ahead of our full year results. And with that, I'll now hand over to Paul to take you through the financial performance, followed by Jo, who will provide an update on underwriting. And I shall be back to wrap up.

Thanks, Aki. Good morning, everyone. It's great to be here with you today presenting another good set of results. You've heard from Aki about the highlights of our first half performance, so I'll dive straight into the numbers. Insurance contract written premiums increased by 5.7% or $160 million with all 3 business segments delivering growth. The group delivered an undiscounted combined ratio of 92.6% and insurance service result of $196 million is a good outcome following the California wildfires. As a reminder, the majority of Re & ILS and London market premiums are still to earn through in the second half. An investment result of $235 million reflects the growing asset base and the earning through of higher bond yields. As outlined at the recent Capital Markets Day, we have introduced a range of operating KPIs to provide better insight into the underlying performance of the business.

Operating profit before tax is $262 million. This is down year-on-year, mainly as a result of the California wildfires and translates into a strong operating return on tangible equity of 14.5%. The effective tax rate has increased 9.2 percentage points to 17.9%, reflecting the implementation of the Bermuda corporate income tax on the 1st of January 2025. The interim dividend per share of $0.144 is in line with the new policy of paying 1/3 of the progressive prior year total. As a result of strong organic capital formation and capital management actions in the first half, we are announcing a $100 million increase to our ongoing buyback, increasing it to $275 million. Now taking each segment in turn and starting with Retail. Retail ICWP increased by 6% in constant currency. And pleasingly, all markets are contributing to our growth momentum following decisive management actions across brand, distribution and technology.

The retail undiscounted combined ratio of 92.7% represents a 40 basis points improvement on the prior year, driven by an improvement on both our market-leading claims ratio and our admin expense ratio as our change program gains traction. The growth in operating profit reflects growing investment returns and the improvement in the undiscounted combined ratio, offset by a lower discounting benefit. Moving on to London Market. ICWP increased by 3% as the business navigates the micro cycles across the market with growth driven by opportunities in each division. Though rates are down 4% in aggregate, significant rate has been taken over recent years, and our portfolio is rate adequate. Exercising our disciplined approach to cycle management has resulted in London Market delivering an undiscounted combined ratio of 87.9%, the fifth consecutive year in the 80s. Turning to Re & ILS. The business has grown net ICWP by 7.9%, primarily in specialty and pro rata lines. And as a reminder, the majority of this premium will earn through in the second half, reflecting the risk profile of the business.

ICWP growth of 7% was driven by deployment of new third-party capital. And while rates have decreased during the year, terms and conditions have broadly held and business written remains rate adequate. The undiscounted combined ratio of 99.5% reflects the impact of the California wildfires. Our initial loss expectation for the wildfires is developing favorably. The result also includes reserve releases on prior year large catastrophe events as these reserves mature. ILS AUM was $1.4 billion at the period end, reflecting the impact of planned returns to ongoing investors and the impact of the wildfires. The appetite of third parties to partner with Hiscox remains strong from both new and existing investors, and we raised over $300 million of new ILS capital and also increased quota share capacity.

Now an update on our change program. As announced at our Capital Markets Day, the group will realize a P&L benefit of $200 million in 2028 from an acceleration of our ongoing change program. And I'm pleased to report we are on track to deliver the $25 million benefit this year. In the first half, we've made strong progress through improvements in our fraud recovery, effective procurement management and a streamlining of parts of our organization. Cost to achieve are also on track at the half year. Turning to our investment portfolio. The investment result is $ 234.9 million for the first 6 months of the year or a return of 2.9% year-to-date. $187.2 million is recognized in operating profit. As a reminder, the operating KPIs are adjusted to exclude the impact of market movements on fixed income investments. And for the first half, this adjustment was to exclude a positive $47.7 million.

Group invested assets have risen to $8.9 billion, driven by profits and the debt issuance. Assets remain conservatively positioned with the fixed income assets having an average credit rating of A and a duration of 2 years. The bond reinvestment yield stands at 4.4% at the end of the period. Now looking at the impact of IFRS 17 discounting. The net impact of discounting for the first 6 months was a negative $11 million. The IFIE unwind was $73 million, and our prior year guidance is unchanged at between $125 million and $155 million.

As with investments, the impact from changes in rates is also excluded from operating KPIs. For the first half, this was to exclude a negative $8.1 million. We have updated the sensitivities to interest rate changes to reflect market conditions and the balance sheet as at the 30th of June. Turning to reserve releases. Reserve releases of $132.1 million for the first 6 months of the year continue our long-standing record of positive reserve development. Releases are higher than in recent years, mainly driven by the runoff of prior year large catastrophe losses such as Hurricane Ian. Our long track record of positive reserve releases demonstrates our prudent reserve philosophy.

Turning to reserves. Our conservative reserving philosophy remains unchanged with a confidence level of 83%, within our 75% to 85% range. The risk adjustment is $279 million and sits on top of an already conservative best estimate. In addition, LPTs cover over 36% of gross casualty reserves for '19 and prior, providing protection from inflation and other pressures. Finally, an update on capital. The BSCR stands at an estimated 239% at the end of the period. The increase since full year reflects strong net capital generation and our debt refinancing, which added 8 percentage points. In June, the group refinanced its subordinated debt, redeeming GBP 261.2 million and issuing $500 million at a coupon of 7%. With a leverage ratio of 18.4%, the group continues to operate comfortably within historical levels and has significant financial flexibility. Shareholder returns of 9 percentage points consist of the 2024 final dividend and our progress on the existing share buyback.

Looking ahead, across our announced capital returns, namely the payment of the interim dividend, completion of the upsized share buyback and payment of the 2025 final dividend, we will be returning an estimated 21 percentage points of BSCR to shareholders. As a reminder, through the cycle, the group intends to broadly operate within 190% to 200% BSCR range, depending on capital deployment and investment opportunities at the time. Decisions on excess capital will be taken by the Board ahead of the full year results. Thanks for listening. I'll now hand over to Jo, who will provide you with an update on underwriting.

Thank you, Paul, and good morning, everybody. So an active environment with elevated natural catastrophes and a heightened geopolitical tension, but robust underwriting and generally favorable market conditions has led to opportunity for profitable growth, and I'm delighted how we navigated each one of our segments, growing our portfolio 5.7% and strong underwriting returns. As a reminder, our underwriting strategy aims to manage the cycle in our Big-ticket businesses by leaning into opportunities where we see profit and exercising discipline where we don't.

This is balanced by the less volatile retail part of our organization where we look for structural growth. This strategy gives us the opportunity to expand profitably through the cycle and it creates a balanced and diversified portfolio across geography, line of business and risk size. So where are we in the cycle and how favorable is the market? So this next slide should be familiar to you. The exhibit on the left is our rates indexed back to 2018 across our 3 segments. The purple line, which is our retail segment, is just less sensitive when it comes to the rate cycle. Rates are up 2%, and each line will have its own dynamic, but pricing across U.K., Europe and the U.S. remains in great shape. Our Big-ticket business of London Market and Reinsurance is still in an attractive part of the cycle. However, for the first time in a number of years, we are seeing rate decline, albeit from decade highs and importantly, terms and conditions have broadly held.

The blue line, which is our property cat reinsurance, at the 1/1 renewals, we saw rates decline 8%. This has moderated as we've gone through the year, and we've gone through the major renewals where we achieved rate, particularly on loss-affected accounts. And across the whole of Re & ILS, rates are down 6%. But cumulatively, they're up 81% since 2018, and we believe the portfolio is well rated to deliver good returns in a mean loss environment. And you can see this with the exhibit on the right, where we believe our portfolio is priced adequate plus for 70% and additional 25% adequate. In London market, which for us is a combination of 16 different lines across 4 different divisions, rates are down 4%, slightly more than the 3% we talked about at the 1/1 renewals as property particularly has continued to soften, although remains sufficient.

Again, rates up aggregate 67% since 2018. And you can see on the right-hand exhibit, the vast majority of the portfolio is rated adequate or better to deliver a good return. We do have a small part of the portfolio that we now believe will deliver insufficient returns in a mean loss environment, and we're managing accordingly. And you can see this on the next slide. So going from left to right. So retail rates are good. We want to continue that year-on-year compound growth. And in Retail Commercial, we've grown that portfolio over 5%.

We've seen some great double-digit rate -- premium growth in things like health and well-being and commercial liability, and this is offsetting some headwinds in property and in crime. Health and well-being is a fantastic example of our sector expertise, where we're leaning into expert distribution and underwriting, and we've grown that segment 17% in the first half of this year. Our other retail segment is our art and private clients. And again, it's had a good year with growth of 9%. A lot of that growth is delivered by policy count growth in our high net worth business in the U.K., where we continue to benefit from our brand expertise and also an AI solution that's helping our underwriters.

Our reinsurance segment, well, as I said, the rates are still attractive, albeit slightly soft -- softening, but it's still an attractive market. And we've grown our portfolio at 7%, leaning into things like crop and pro rata. While also a net premium growth, if I look at our net PMLs, they're actually flat or reduced as we benefit from some additional retro protection. And then in London market, while we continue to have different lines in different parts of the cycle, and we're managing those accordingly. In property, we're up 11% as we execute on a high net worth opportunity, and we benefit from the aggregate that we deployed in the last half of last year earning through. Casualty is actually back to growth as we launch a couple of new adjacencies and also we're taking rate in our general liability portfolio. And this is offsetting some declines in cyber and D&O.

And our specialty -- while our specialty is affected by our decision to reduce exposure in product recall as we react to some broader market trends. So all of this is a result of our proactive portfolio management. And this is the framework that we use, a framework that is grounded in decades of data. We look at key qualitative metrics across the whole of our business at a systematic and a very detailed line of business level, things like rate adequacy, but also exposure, loss trends. We complement this with expert judgments on the market. So these are qualitative metrics, things like broker behavior, demand and sentiment. And then both of those feed into what we call our underwriting ecosystem. So this is policies and procedures underpinned by technical experts with experience through the cycle and across the whole value chain from risk selection to claims.

We overlay a forward-looking view of risk and then we react accordingly to any emerging trends in the market. Disciplined profitable growth means, of course, actively managing the portfolio that we have, but it also is about seeking new opportunities for expansion. And as Aki mentioned, we're looking to increase our capability in the development of our product proposition and speed to market. And we're doing this across our whole portfolio in a number of ways, providing more solutions to our customers by going deeper into some of our chosen segments, by attracting new segments and then also some innovation around products and services. So let me bring this to life to you with a few examples. So in London Market, we have launched a technology E&O [indiscernible] emission offer to sit alongside our cyber proposition. So technology E&O is not new to us. We've got decades of experience.

We've written this for a very long time in our retail business from micro to jumbo. But going deeper into this sector allows us to capture the more complex technology businesses that are finding their way to London and written on a subscription basis. Here, we lean into not just our underwriting expertise, but our expertise around claims management and risk management. When it comes to attracting new segments in the U.K., we are expanding our health and well-being sector to vets and dentists, again, leaning into not just our underwriting expertise, but our distribution expertise and risk management. New products and services. Well, in France, we've launched an innovative new product to protect reputation. If this is successful, we'll look to roll this out more broadly across the group.

And then in the last half of this year, we will be launching a new proposition for our micro cyber customers focused on services that are really focused on prevention and mitigation, helping our cyber customers become more resilient and also protecting the broader interest of society. So these are just some examples of the new products and propositions that we're launching to fuel that future pipeline growth and to complement our existing well-managed portfolio. I'll now hand back to Aki.

Thank you very much, Jo. So as market conditions evolve, we are once again seeing the benefits of our diversified business model. Retail volumes are growing with the business on track to deliver growth in excess of 6% as we go deeper into our chosen sectors, add new products, expand into new customer segments and add new geographies. In Big-ticket, we remain disciplined and we'll continue to be selective in deploying capital to capture attractive opportunities while actively managing the cycle where the market is softening. And through our Change Program, we are simplifying our business, increasing efficiency and building scalable infrastructure to fuel our growth. This remains on track.

Capital generation continues to be strong, and we have delivered a strong return on tangible equity of 14.5% in the first half as we continue to compound book value and return capital to shareholders. The combined impact of capital returns through ordinary dividends and buybacks means we will be returning over $400 million of capital to our shareholders before the full year results or around 11% of opening equity. And our balance sheet remains in great shape, enabling us to keep investing to capture the opportunities ahead and accelerate retail growth to double digits in 2028. So thank you very much for listening. I'd now like to open to questions.

It's Kamran Hossain from JPMorgan. 2 or 3? Can I do 3? Okay, I will start with -- first question is just on, I guess, the sale of DirectAsia was a benefit to the retail combined ratio in the first half. So there's -- in essence, there's a change in scope of kind of what was there now -- what's there now versus what's there before. Is there any reason that the 89% to 94% combined ratio range for retail didn't come down to adjust for this? And what I'm really trying to get at is the 97% or there thereabouts a good level for us to start modeling from for the next few years?

The second question is on the share buyback. Clearly, a very welcome increase to that today. Is $ 275 million the new base level for the next few years? I think you've explained your business is a lot more sustainable, consistent than it has been for a while. So is that the new level? And then just curious on London market. You kind of got lost some headlines a bit today with reinsurance doing much better than hoped in a difficult year and retail doing well. Do you think London market can sustain an 80s combined going forward even with pricing pressure and given where it is now?

Okay. Thank you, Kamran, for the 3 questions. In terms of London market and the sort of underwriting conditions and sustainability of 80% core, I think Jo will provide a response on that. In terms of is $275 million the new baseline for buybacks. Paul will provide a commentary on that. And just, I guess, very quickly on DirectAsia and retail combined ratios, et cetera. Look, the range is 89% to 94%. That is the range that you should model to. That's what we are aiming for. I guess just to provide a bit of context, in the retail business now, we have 3 years of consecutive accelerating growth, right? 4% in '23, 5% in '24, 6% in 2025.

And we've achieved that and have been achieving that at a time when the inflation-led spike in rates has been dissipating. So ex rate, actually, the growth has been greater than that itself. If you then look at the bottom line, the combined ratio, even if you ex out DirectAsia, similar trend, 3 years of improvement, okay? So we're very happy with the way the business is performing and it's been doing that now consistently. And -- but as far as the combined ratio range is concerned, no change there.

Yes. And in terms of the buyback, I mean, sort of -- we've said on many occasions, the capital management philosophy is clear. So our priority is very much deploy capital for growth depending on the opportunities that we see ahead of us, maintain a strong balance sheet, pay a progressive dividend. And then once we've satisfied those conditions and evaluate any surplus for potential returns to shareholders. So I think the sort of $ 275 million and the $ 100 million increase that we've announced today should be taken in the context of where we got to at the half year. So we were at, as you've seen, 239% BSCR, and that's off the back of very strong organic capital generation, both from underwriting and investment return, but also from the inorganic means that we saw in June.

So when you put that together, it was about a 25% addition. And I think that led to the sort of flexibility that we had to immediately reward shareholders with the $ 100 million upside. So it's more a case of look at the circumstances around the half year, but very much going forward, as is our custom, we'll evaluate the sort of potential for surplus returns very much on an annual basis in line with the annual results consistent with that capital management framework I've mentioned.

Yes. And then with regard to London market, we're pleased we've had a combined operating ratio in the 80s for the last sort of 5, 6 halves, which is really pleasing. It's a result of active portfolio management. I think there's a -- we talk about London market, but for us, that's 16 different lines across 4 different divisions. And each one is in a slightly different part of the cycle. We've got some lines that are still rate increase, some that have been softening and have been for many quarters.

As I said, our strategy is about effectively managing the cycle in our London market. So of course, we want to pursue opportunity where it's profitable. But at the same time, we absolutely will retreat where we don't believe we're getting paid for that. But I'd say at a headline level, the market remains really attractive. We talked at the rate adequacy. The vast majority, 85% plus of our London market portfolio, we believe will deliver good returns in a mean loss environment. There is a part of our portfolio that we believe will deliver insufficient returns, and we're managing that. We don't give a forecast for our combined operating ratio for London Market. But how I feel about the portfolio is pretty positive. I mean there's a lot of portfolios in there that are performing pretty well.

If I might just add a comment on capital. What you should, I guess, understand in our position is that we are proactive and very focused and particularly Paul, on ensuring that we have an efficient capital stack and maintaining overall balance sheet efficiency, and that is a key priority for us.

Andreas. And then we'll go to Darius and then Ivan.

Andreas van Embden, Peel Hunt. Just on capital management in the second half of the year, could you sort of outline what else you could do to improve the capital efficiency of your book? And does this include any derisking of your exposures within Hiscox Re, i.e., in the next 3 years, will you be gradually reducing your exposure to cat risk and grow that sort of specialty book within Hiscox Re? And is this where most of the capital is coming in from third parties? Is that all mostly allocated to that sort of non-cat area at Hiscox Re or are third-party investors still putting capital to work in the property cat market?

Paul, do you want to provide a response on that?

Yes. I mean I think there's 2 aspects to your question, Andreas. I think in terms of the sort of options that we've got, I mean, you'll see from the strength of the balance sheet and the way that we've managed that is, as Aki has highlighted, very proactive. I'm very pleased with the position that we have going into the second half of the year. If you look forward, I talked in the aspect of my presentation that we've got something like 21 percentage points returning to shareholders over the course of those various actions. Post that, it's 218. So the balance sheet is strong going into that. Now of course, we've always got active mechanisms to control volatility and manage that. So you would see that we issued the cat bond at the start of the year. That's one of the means that we had available, for example. I think in terms of the overall positioning of the portfolio, that goes back to that first aspect of the capital management framework I mentioned. It depends on what we see ahead of us in terms of capital deployment.

Now the reality of it is and towards the back of the pack, you'll see where our PMLs have gone. So essentially, '23, '24, thanks for putting that up, were exceptional times, the best 2 years in 10, 20 years in terms of rate environment, and we lend into that heavily. You can see that in more recent times, we've come off modestly in controlling our PMLs as a consequence. Now looking forward, it will depend on where we are in the cycle and what we see once we get through wind season. And I think that will dictate our appetite. On the current trajectory, we don't expect to lean in heavily into 1/1, but it will depend on conditions once we get through it. The second aspect in terms of third-party capital, we raised about $ 300 million in the first 6 months of the year. That has really all gone into sort of property cat exposed business.

Darius?

Darius Satkauskas, KBW. Two questions, please. So the first one is you generated roughly 17% of capital and then consumed capital was 6%, so net capital generation roughly 11%. Can you give us a rough idea how much of that was retail, if you can? And the second question is just sort of broader, more philosophical question. Economic climate in the U.S. seems a bit more challenged or uncertain at least. Are you seeing any signs of sort of growing propensity to claim among small business owners, lack of new business formation? Anything to help us sort of gauge how the medium term could look compared to the recent past?

Okay. In terms of cap gen, we don't tend to break down the numbers by specific businesses. I think we've communicated in the past, the retail business is the most capital efficient amongst the 3. And London market is a bit more capital intensive and reinsurance, as you can imagine, is the most intensive. But we're very pleased with the capital generation. If you want to make any more comments then.

Yes. I think just to echo those points, the 92.7% and you add on the investment return that comes through that, the capital generation out of retail is very satisfying. And you add on -- you just look at the sort of changing profile of the group. We talked a bit about it at the CMD. But clearly, we are growing a greater proportion of retail business that's less volatile as an overall proportion and by virtue of that, less capital intensive.

And then in terms of the economic climate, look, we read and see the same reports as everybody else. So the tariffs have created some uncertainty. Consumer sentiment has declined in the U.S. But as far as the sectors that we target and the customer segments we target, we're not seeing any reduction in economic activity. So new business formation continues to be strong and rising. So we're very pleased with that particular trend. And I guess just to put in context of our business as well, we've been in the U.S. now over 2 decades. We've been operating our digital platform in the U.S. for almost 1.5 decades. And you heard on the 22nd of May, some characteristics of that market. It is very large. It is fragmented. There's lots of underinsurance, no insurance as well as people gradually shifting to adopting digital platform as a means for acquiring insurance.

So those trends are in our favor. And 1.5 decades later, still more than half the customers that buy insurance from us are buying it for the first time. So that tells you there's just a less demand out there that needs to be serviced, and we have to go find those customers and make sure that they're aware of the products that we're providing. So that's kind of the background context. But economic activity, I mean, the U.S. economy is just dynamic. I mean, yes, all those indicators suggest that maybe there should be a slowdown. We're not seeing it yet. And what I might do is just provide -- if you kind of just look back and there's a couple of -- there's certainly one imperfect event in the recent past that might give us some indication, and that was COVID, right?

So during 2022, economic activity did decline quite a lot. And again, if you think about the segments that we target, we actually saw a spike in new business formation because as people moved away from their corporate roles, they then set up business for themselves because that is the nature of the economic paradigm in the U.S. There's less of a welfare state. So what are you going to do? You come up with a new idea and new business is set up. So look, generally, the U.S. economy still seems to be firing. And as far as Hiscox is concerned, it continues to be an incredibly attractive market for us.

Now 2 areas where we have seen some moderation, and that's 2 specific classes of business that we write in our U.S. broker channel. One is architects and engineers, which supports very small construction firms. And we saw a bit of a slowdown in the second quarter, slower start or suspension of starts. I think that's beginning to ease. And the other one is entertainment, where again, a specialist class of business for us, we're one of the market leaders in that small entertainment program segment. And this is largely because you know many of the productions outsource or have activities outside of the U.S. and then the tariff noise, shall we say, just created a degree of uncertainty. But it's really isolated to those particular areas. The vast majority is performing very, very well.

Ivan?

Ivan Bokhmat from Barclays. My first question would be on the distribution agreements. So you mentioned the big distribution signed in the U.K. Maybe you could give a bit more context of what products there could be and in general, from those new distribution arrangements across the franchise, how much of an impact do you expect on new business production? Second question is probably for Paul related to the prior year development. Maybe you could help us give a split between what you've released in the first half.

Are we seeing any stronger run rate outside of Re & ILS in those books? And maybe the third smaller question. I mean, Jo, you mentioned that some books are still seeing rate increases. And what we've heard from some of your peers across the pond is that we are starting to see the effect of withdrawn capacity in markets like D&O or perhaps cyber where rates may have been a lot softer before. I don't know if you're seeing that or maybe there are some other specific books where rates have shifted or surprised you.

Okay. Thank you, Ivan. So as you rightly pointed out, Paul will comment on PYD, and Jo will comment on the rating environment. Okay, in terms of distribution agreements in retail, think about our distribution engine in these kind of 2 parts in terms of what is driving the -- sort of the growth acceleration and what will continue to drive the growth acceleration. But I say multiple parts. Firstly, there's just the cadence and intensity of the platform, right? So that's our core business, policy by policy, what are we writing. That is improving across the piece, okay? That's improving across the piece as we launch more products, as we've backed the business with more marketing.

Over the last 3 years, we have doubled the amount of marketing that we spend. So if you go back to, I think, 2021, we were spending about $ 50 million. We're now at about $ 100 million, okay? And interestingly, just going back to an earlier point and the combined ratio is coming down. So you can see some of the scalability that we're beginning to build into the business here, right? So there's just that policy by policy that is improving. Secondly, over the last sort of 2 to 3 years, after a hiatus for many reasons, we are on the front foot and have been winning distribution agreements, whether that's positions on panels or distribution partnerships. Many of them are not really mature yet because typically, when you win a partnership or a distribution deal, it will take 18 months to 2 years to begin to mature. Those are only just beginning to have an impact.

But the core of the business will be just policy by policy, the distribution deals add in, again, a bit of a point or 2 here and there. Two of the factors, and Jo spoke about one of them earlier, which is the number of new product launches that we have that we launched in the first half that we will be launching and are launching in the next few months, whether it's dentists and vets in the U.K., E-reputation in France or entering new customer segments such as tech start-ups and life sciences. All those factors are going to drive increased growth for our business in our retail business. Paul, over to you for PYD.

Yes. So reserving and prior year development. So just to talk about reserving. So at the half year, we have a consistent approach. That remains unchanged. So very conservative, and that has led to our 18-year track record of positive PYD. If you look at what happened, the actuaries run their usual review at half year, do some deep dives and the outcome of that is we saw a number of historical catastrophe losses start maturing and run off.

So Hurricane Ian is a really good example. 2022, the industry losses were going out in the region of $50 billion to $60 billion. I think the market commentaries that I've seen have really come in below that. And therefore, you've got redundancy versus the initial loss pick that we put up for that. There are other losses in the 17 to 22 that are similar from that perspective. So obviously, they are property in nature. The vast majority of that is weighted towards Re & ILS. There's nothing unusual in the other sort of London market and retail to sort of report exceptionally around that.

And then with regards to rates. So yes, there's a lot of narrative to say cyber and D&O particularly plateaued and sort of the bottom of the market. We're not seeing that yet. The rate of decline has definitely slowed, but we are still seeing a slightly negative rate in those areas. And obviously, we're managing accordingly, and we've shrunk our portfolios over the last couple of years. But yes, I've seen -- I've read the same narrative that we're at the plateau and obviously, we move up from here. In terms of areas that we are -- that has changed and we are achieving rates.

So general liability is probably a good example. There is rates. We're putting rate through our own portfolio. I think that has been driven probably by the narrative, the wider narrative in the market around general liability and prior year reserves, et cetera, more generally. And so therefore, that's pushing through rate. I mean we are taking that rate. We're not significantly growing our portfolio, but we're using that rate to actually reduce some exposure. But yes, there are 2 areas. And then in our reinsurance account, I talked about the aggregate rate at 6% across. But what we saw at the midyears was the 2 ends of that, we had loss affected accounts. So accounts that have been -- had losses of either Milton or Helene or indeed the wildfire, they were seeing significant price increase. But then obviously, there were clean accounts that were going through reduction. So obviously, what I showed you was the aggregate, but we did see a relatively large spread of the sort of midyear renewals.

Just to round out that reserving picture. I mean I talked about reserve releases, but you would have seen in the presentation that the other aspect of it is where is the reserve strength. And you'll see that we've got the 75% to 85% range. The 83% confidence level remains unchanged. And what's interesting is the reserve margin has had a modest addition as well. So we've maintained that real conservative approach.

Sorry, just a follow-up on that U.K. distribution, is it in just high net worth individuals or more commercial side of things?

It would be on the property side of the business.

I'm Ben Cohen from RBC. I wanted to ask about the growth that you talked about in U.S. middle market property. I think that's an area, and I realize it incorporates quite a lot where some of your peers in the U.S. maybe have been talking about more competition coming into the market. Could you just say how is the distribution set up? How are you differentiating? Is it particular cat exposed or whatever there?

And the second question was just in terms of your discussion of adequacy, just to be clear as to how you define adequacy, is that simply your kind of group ROE target adjusted for volatility? And so then that's adequate anything adequate plus is materially above that? That was the clarification. And a third one, if I may, just on Italy, is that going to be material to any degree in the next few years? Or is that really even with the acquisition, just really in start-up phase?

Okay. Of course, in terms of defining adequacy, Jo will provide a bit of a highlight on that. And then in terms of middle market and Italy, we'll divide that between us. But in terms of Italy, look, it's going to be immaterial this year. But if we're looking out over the next 5 years, I expect it to be material, yes. But the acquisition that we made is very, very small, but what it does, it gives us a front-end technology. It gives us -- we've kind of brought on board around 30, 35 colleagues who have deep understanding of the Italian broker market, which is heavily intermediated.

And we now have the sort of key ingredients, which is that local knowledge, better technology, Hiscox brand and all our know-how, which are some of the key ingredients that we need to now see that business grow. But we're pretty excited about it. It's a blank space for us where there is a very large, small commercial business community. In terms of growing our U.S. middle market, look, it's not something we've traditionally done. There's a very small amount effectively of the U.S. middle market property business that comes to Lloyds. And for the moment, that's what we're accessing. The key to unlocking that for us has been the digitization agenda that Kate Markham, our London Market CEO, has been leading for a number of years. So what has enabled us to do is to access that business for the moment that comes to Lloyd's in a very efficient way. And that has been the prohibitor in the past is can we access what is typically low premium business in a way that's efficient and that meets our return hurdles.

And this is one example. There are other examples as well where the technology investment that we've been making over the last 3 to 4 years in London market is now beginning to open up. It's not just increased efficiency but beginning to open up new opportunities that either we just couldn't do because of cost or because of speed. U.S. middle market is one around efficiency. SME, cargo is another one around efficiency and speed. Again, that's a business that would traditionally not even come to Lloyd's, and we're creating a brand-new opportunity there. So that's really linked to technology.

Sorry, from a rate adequacy point of view, you're right. So the way that we look at the rate adequacy is we deliver -- we want to deliver a return in a mean loss environment. And so various parts of our business will have hurdle rates of what that return looks like. As a proxy, you could look at something like the core. That hurdle rate would then take into account the volatility. So clearly, our retail business is much less volatile. We would run that to a higher core and our London market and our reinsurance, obviously, as Paul mentioned, more capital intensive. And so therefore, the combined ratio we would look for would be targeted lower.

We then translate that to if it's delivering that return in a mean loss environment, that would be adequate. If it's delivering, in our view, more than that in a mean loss environment, it would be adequate plus. and low would be not returning that return in a mean loss environment, but it doesn't mean loss-making. It just means there would be an insufficient return in terms of the hurdles that we're targeting across the group.

Okay. Will?

Will Hardcastle, UBS. On the Big-ticket, you've historically used the management of gross to net heavily on the cycle and as that shifts, should we expect a continuation of that historical method? And I guess, would you agree that the cost program may delay some of that trend because effectively, it will look adequate on a return on capital for longer? The second one is a really quick clarification. It's on the 20% uplift on the DPS. To be clear, that's just the final DPS, not the full year.

Yes. In terms of -- well, in terms of gross to net, that remains a strategy. And that is particularly the case for reinsurance and ILS where we apply that. If you go back over the last sort of 5 years in the depth of -- as we now look back at it, the soft market, the gross to net for the business as a whole for reinsurance and ILS as a whole was we were retaining about 20%, 25% and seeding out 75%, 80%. That is now more like 50-50. And that's a function of many factors, partly because capital leaves the market and opens up opportunity.

And as that opportunity opens up, as you saw from the P&L charts earlier, we've deployed our own capital. And that strategy has actually worked remarkably well. When the market softens, we're not there yet. We're off peak rates, I wouldn't call it a soft market. But if that cycle continues, actually one of the ways that we -- the strategy of the business is that we want to maintain our position with our customers, with our clients. But as the profile that Jo laid out, as it moves down to adequate or maybe less than adequate, then we want to bring in other capital that will reduce our average cost of capital and allow us to maintain that position. That will be unaffected by the Change Program. I think -- see those 2 things as separate.

Darius, do you want to have another go?

Just 2 follow-ups. So the first one is, Jo, it sounds like you don't take into account the interest rate environment when you think about the price adequacy. Is that correct? So how do you capture the economic value of what you write if that's not the -- at your level when you're choosing what business to sort of put in the portfolio? The second question is, are you able to -- that's for Paul, are you able to tell us what the risk adjustment release was in the first half? When I think about sort of the PYD, how much of that is risk release, which is a bit more mechanical, how much is best estimate?

Okay. Paul, if you have a go at the second one, let me just close off the first one. We do take interest rates, the investment environment into account. And what we're talking about is, what can the underwriters control and what can't they? They don't control interest rates. So we take that out of that equation. The analysis that Jo looks at and the hurdle rates are very much focused on underwriting then at the aggregate level, of course, we're taking investment returns. And therefore, the overall value proposition that we're delivering for our business and for shareholders and for customers takes that into account. But it's a strict policy within our business. We don't include it for the underwriters in our business.

And then in terms of the mix of, say, best estimate and risk adjustment, we've not broken it out, but the majority of it was just best estimate. You've seen -- I mean, if you look at the margin, you're actually seeing that it's up plus 12% overall. So we've actually strengthened the margin in total.

It's Chris Hartwell from Autonomous. Just a couple of quick ones. First of all, in the release, there's quite a lot of commentary or comments around, I guess, brand campaigns and advertising. So I was wondering if you could just sort of -- how should we think about marketing spend going forward and how that fits in with the sort of general comments within the plan on unattributable costs? And second one as well, there's a comment on wildfire experience to date. I was wondering if you could just give a little bit more color on what you're seeing in terms of, I guess, speed and quantum of payout.

Okay. In terms of wildfire experience in terms of speed and quantum of payout -- Jo? Okay.

In terms of brand -- sorry, advertising and marketing spend in general. So Chris, I guess the -- as I just mentioned a moment or 2 ago, we're believers in this. We have over decades, built what we believe is a distinctive brand in the insurance sector -- in the specialist insurance sector. We have increased our marketing expenditure over the last 3 years from -- I'd say, from roughly around GBP 50 million back in '21 to around GBP 100 million -- over GBP 100 million now, so roughly doubled it. And that's all being absorbed within the combined ratio, which has also been coming down at the same time.

And indeed, the expense ratio has been moderating at the same time as well. So you can see the scalability we're building in the business. That brand -- the whole marketing advertising or marketing is split into essentially 2 acquisition and brand. Brand is the one that's been increasing materially. Acquisition has been as well, but brand has been a material increase. And it's been a key driver for us of being able to maintain cost of acquisition. And just to give you -- go into just a little bit of detail there, particularly for our digital platforms, we have to bid for terms, general insurance terms as people go to search online for insurance. But if people go online and search not for business insurance, but search for Hiscox, the cost for us is significantly lower. And therefore, what the brand investment does, it creates creating that awareness, and we can measure that in a number of ways. And for instance, in the U.K., our awareness has doubled over the last couple of years.

In the U.S., in our targeted sectors, it has materially increased. We compete with the biggest insurance companies there. But in our sectors, we're very, very well known. So that helps reduce the cost of acquiring customers. And actually, the holy grail in this is they don't even search for Hiscox. They just go to the Hiscox portal. In which case, it costs us nothing to acquire the customer in terms of marketing spend. So that's the methodology we use. There are a range of metrics that we then apply such as customer lifetime value, various other metrics that tell us whether the spend is effective, and we manage that in a very close way. So we regard this as being a core part of our strategy, and it's enabled us to keep our cost per acquisition broadly flat over a number of years. You should expect to see that number continue to increase as the business continues to grow. It will be probably a little bit more in line with the growth of the business as opposed to the doubling that you saw over the last 3 years.

So as Paul mentioned, our wildfire loss has trended favorably, which is not a surprise. We are quite a prudent reserve when it comes to looking at our exposure on events. So that has come down. In terms of speed of payment, for us, it was predominantly a reinsurance event. So we said that we reserved $170 million and $150 million of that was in our reinsurance segment. So the nature of the payment for us is actually very quick. When we reported our results at the full year in March, I think we'd already said then we had paid well over 60%. And obviously, that has fired up significantly since then, just given the nature of loss for us.

Okay. Okay. Let's make this last one then Ivan.

Just wanted to -- a little follow-up on the new ILS capital that you've raised. I mean you've seen a bit of a volatility regarding the AUMs. Just wondering if you could help us understand, going forward, the fees and the economic commercial terms that you raised this new capital. Is it very different to what was before? I mean, should we expect sort of similar profitability?

Thank you, Ivan. Paul?

Yes. So the way that the fees break down in general, this is for quota share partners and ILS. You've got really a fixed component dependent on volume and then a performance component depending on clear underwriting profitability. I mean the new capital that we've put up or signed up both from existing and new partners, the terms are broadly consistent. There's no material change in that. It's really about the blend of -- for the full year and how the economics lie how do you deliver your fixed? It's pretty steady overall. And then the variable is overall is the profitability. Last year, we had a 69% combined. Let's see where we get through wind season and see how that impacts the PC component of the ILS fees and quota share partners.

Thank you very much. So I think we can now bring this to a close. Guys, thank you very much. I guess just to kind of summarize that this has been a period for Hiscox of full creativity and progress, attractive growth, strong capital generation, immediate return to shareholders. And as I said, we're looking forward to the second half of the year and beyond. Thank you very much, everyone.