Key performance indicators 2016
|Group key performance indicators|
|Gross premiums written (£m)||2,402.6||1,944.2|
|Net premiums earned (£m)||1,675.0||1,435.0|
|Profit before tax (£m)||354.5||216.1|
|Earnings per share (p)||119.8||72.8|
|Total ordinary dividend per share for year (p)||27.5||24.0|
|Special dividend (p)||–||16.0|
|Net asset value per share (p)||649.9||545.0|
|Group combined ratio (%)||84.4||85.0|
|Return on equity (%)||23.0||16.0|
|Investment return (%)||1.9||1.0|
|Foreign exchange gains (£m)||152.4||15.2|
|Reserve releases (£m)||213.0||205.9|
I am pleased to report a record profit of £354.5 million (2015: £216.1 million), over 60% more than last year. We maintained our underwriting discipline and benefited from a very favourable foreign exchange gain and good investment return.
We continue to grow the retail businesses between 5% and 15% on average each year, whilst managing the more volatile London Market and reinsurance businesses more aggressively as the conditions dictate. This strategy has resulted in our transformation from a niche Lloyd’s underwriter to an international insurance group with a strong consumer brand. Our retail business now delivers 45% of the Group’s profits (60% excluding foreign exchange gains) and 49% of its income.
We made a much improved investment return of £74.8 million (2015: £33.7 million), which we would happily have accepted this at the beginning of the year, given the political surprises that added considerably to the already challenging investment environment.
We succeeded in conducting an industry-wide ‘dry run’ to test the London Market’s ability to withstand a mega-catastrophe, involving insurers, brokers, Lloyd’s ratings agencies, regulators and Her Majesty’s Treasury. We learnt a number of valuable lessons from the exercise, the most important of which is that London has all the ingredients needed not just to survive such a market-turning event, but to thrive. We now have a blueprint for what the London Market needs to do to maintain its leadership position.
For the Group to prosper it needs to embrace new ideas and perspectives, and 2016 was a great year for us in this respect. We recruited several leading specialty teams in London, and began our new apprenticeship scheme for non-graduates. The appointment of Aki Hussain, our new Chief Financial Officer, has also boosted our Board and Executive Committee.
The last time I saw market conditions like this was in the 1990s, but despite the difficult trading environment, the Hiscox Group has never been in better shape. We look forward with optimism and confidence.
Our 2016 result represents a record year for Hiscox with profits before tax of £354.5 million (2015: £216.1 million), beating our previous record of £320.6 million achieved in 2009.
Hiscox Retail is becoming an ever more important part of our business, growing revenues by 13.2% in local currency and doubling profits to £158.0 million (2015: £78.6 million).
These very good results mask on-going soft market challenges. Our London Market business continues to face pricing pressure in most lines. Despite this, it delivered a strong profit of £44.0 million (2015: £54.6 million) and growth in local currency of 14.2%. Our investment in new teams has offset the decline in some established lines. We expect the soft market conditions to continue in 2017, and that particularly tortured London Market lines will shrink.
Hiscox Re and ILS has spent the last three years evolving and adapting to market disruption, successfully navigating new capital and declining rates to become a premier league player in the reinsurance and ILS space. Through good underwriting and good fortune we have avoided significant losses in what has been the worst year for catastrophes since 2012, increasing profits to £115.5 million (2015: £97.5 million).
Our adaptability has meant we have evolved organically over the past decade. We are a diversified international insurance group with a powerful brand, strong balance sheet and plenty of room to grow. We are not afraid to take bets, make difficult decisions or shrink as we adapt to the markets around us.
2017 will represent yet another step change in the evolution of our business, with our retail businesses further growing in importance. We have diversity by earnings, investments, geography, product and distribution. We are increasingly leveraging our underwriting expertise and brand to generate fees and commissions.
We talk a lot about the symbiotic relationship between our retail and big-ticket businesses. This has never been more relevant than this business plan cycle as we proactively reduce the big-ticket insurance lines, but continue to grow the retail lines to drive growth and profits.