in parallel to widen the distribution and to grow Marketing
diversified accounts. I have always firmly believed that if you are good
at what you do you should make every effort
We will continue to study the alternative risk to spread that good news to potential clients.
transfer methods that are being developed I think our marketing has done just that and
and use them or write them, depending I must congratulate Steve Langan who heads
on the price levels. our UK retail side and masterminds our
worldwide marketing. It has made us stand out
The London Market division also writes from the crowd, has given us standards to live
a successful balancing book of non-catastrophe up to, has pulled in a great amount of business
business in London and through other and has been a very good investment.
We have made offices worldwide.
IT
a very good profit Retail insurance business I bore my colleagues by banging on that
despite the second The accounts that we call ‘retail’ business
are very close to my heart as when I underwrote
we should be an IT company with insurance
attached, not an insurance company which
costliest storm at the box, I built up those accounts leaving uses IT. We are good at underwriting which
on record and the larger risks to my partner Nicholas Thomson.
I always thought that the retail accounts were
we have done overall successfully for 112 years,
but the next era will be dominated by IT, from
a challenging worth building up for their stability. In 1988 an increasing competitive advantage from
investment market we set about widening our distribution to non-
Lloyd’s brokers and into Europe, and later in
management information, especially in
calculating underwriting rates, to distribution
1996 we bought an insurance company to of policies. The company with the best IT and
take the retail account. We paid £28 million the ability to use it well will win.
for the company (including a £6 million premium
over assets) which seemed a high price, Investments
and I remember being warned by our investment Investment income has contributed on average
banker that we were betting the bank. It is 50% of our profits in the past, but today’s
highly satisfactory to see the UK and European low interest rates make that impossible in the
businesses make a profit of nearly £50 million near future without phenomenal risk taking.
this year. A pretty good investment. The low returns from the bulk of our portfolio of
Government bonds give little protection against
The growing retail accounts are very important the potential volatility from any risk assets we
to us as they give stability to our profitability and own. David Astor, our Chief Investment Officer,
add real value as steady profits are rated at a works tirelessly to eke extra yield without undue
greater multiple. We have invested heavily into risk and has nearly hit that 50% this year despite
them both in terms of money and effort as we difficult conditions.
believe them to be core to our building a
balanced and steadily more valuable business. Insurance politics
The year has seen us conquer the burden of
Overseas expansion Solvency ll and I think achieve greater harmony
We first expanded the retail account into Europe, with our regulator, freeing us up to get on with
starting in 1993, and it has taken time to reach making money. The financial burden of the
critical size. It is easy to see Europe as one implementation of Solvency ll on us and the
geographical area when it is immensely different industry has been considerable. After 48 years
in the business practices in each country despite of assessing risks, which is what underwriting
38 years of efforts to create a single market. is, it was surreal to have a one size fits all model
We are winning there and the next few years for assessing the risks in the business inflicted
should see a steady increase in profitability. on us in minute detail by actuarially driven
regulators, combined with corporate governance
Next we set up our Guernsey operation which diktats imposing huge expectations on non-
has been a huge success and will remain a hub executive directors combined with an extra layer
for some of our accounts. of risk assessment staffing.
Bermuda followed and that too has been very The FSA is about to be split in two into prudential
successful. Robert Childs, who is due to take and conduct supervision under the Bank of
over from me as Chairman, set up the Bermuda England with the duty to ensure we are able to
company, and proceeded shortly afterwards pay claims when they fall due. I could wish that
to open our US offices. We have made a big we had one regulator to form a relationship with
commitment to the US and I am very excited and not two as there is always a fear of
at the possibilities. duplication or of something falling between the
two stools, but we are where we are. We need
We are well aware of the graveyard of businesses effective regulation as the whole industry suffers
which have expanded overseas, so having when an insurer misbehaves or becomes
expanded in the sophisticated (but battered) insolvent. The FSA has taken virtually all self-
economies of Europe and the US, we will regulation away from our industry which means
consider any expansion east or to other that by definition we are invigilated and regulated
emerging economies with great caution. It will by people with little or no trading experience
happen when the right opportunity arises. in our business. We need good regulation,
Chairman’s statement Hiscox Ltd Report and Accounts 2012 5