Annual Report • Mar 24, 2023
Annual Report
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Read about how Hiscox is using technology to work differently. Hiscox is a diversied international insurance group with a powerful brand, strong balance sheet and plenty of room to grow. We are headquartered in Bermuda, listed on the London Stock Exchange, and currently have over 3,000 staff across 14 countries and 35 ofces. Our products and services reach every continent, and we are one of the only insurers to offer everything from small business and home insurance to reinsurance and insurance-linked securities. As a Bermuda-incorporated company, Hiscox is not subject to the UK Companies Act. However, the material provisions of Section 172 of the UK Companies Act are substantively covered by the Bermuda Companies Act, which is the applicable legislation that the Company is required to comply with under Bermuda law. As a company listed on the London Stock Exchange, we comply with the requirements set out in the UK Corporate Governance Code 2018 and the Listing Rules and Disclosure & Transparency Rules of the UK Financial Conduct Authority. Our remuneration report is consistent with UK regulations. Any additional disclosures over and above these requirements, have been made for the benet of shareholders, on a voluntary basis. Chapter 1 2 Performance and purpose 2 Our purpose, values, culture and vision 4 Our key performance indicators (KPIs) 6 Our strategy and how we operate 8 Key risks 12 Business priorities for 2023 14 Why invest in Hiscox? Chapter 2 20 A closer look 20 Chairman’s statement 24 Chief Executive’s report 42 Capital 44 Risk management 48 Stakeholder engagement 54 Environmental, social and governance (ESG) 60 Task Force on Climate-related Financial Disclosures (TCFD) Chapter 3 72 Governance 72 Board of Directors 75 Board statistics 76 Group Executive Committee (GEC) 82 Chairman’s letter to shareholders 83 Corporate governance 88 Compliance with the UK Corporate Governance Code 2018 94 Nominations and Governance Committee report 99 Audit Committee report Chapter 4 106 Remuneration 106 Annual statement from the Chair of the Remuneration Committee 110 Remuneration summary 112 Annual report on remuneration 2022 122 Implementation of remuneration policy for 2023 126 Other remuneration matters 132 Remuneration policy Chapter 5 148 Shareholder information 148 Directors’ report 151 Directors’ responsibilities statement 151 Advisors Chapter 6 157 Financial summary 158 Independent auditor’s report 166 Consolidated income statement 166 Consolidated statement of comprehensive income 167 Consolidated balance sheet 168 Consolidated statement of changes in equity 169 Consolidated statement of cash ows 170 Notes to the consolidated nancial statements 231 Additional performance measures (APMs) 232 Five-year summary 1Hiscox Ltd Report and Accounts 2022 Energy in collaboration Here at Hiscox, we’re working differently. How we collaborate to serve our customers and work with our business partners is changing. We’ve created what we call team charters: these are co-created agreed ways of working with each other that balance time in the ofce with time at home, with the overarching principle of being there for our customers. We’re also investing in and using technology in new ways – making it easier for our customers to do business with us, and using data to deliver intelligent underwriting. Although technology can bring our global teams even closer together, we also love connecting in person to share our ideas and energy on moving the business forward – just like some of our Hiscox Re & ILS team featured on the cover of this report. In the following pages, you’ll nd a selection of Q&A interviews from senior leaders right across our business. Not only do they talk about what happened in the business in 2022 and what’s coming up in 2023, they also talk about what brings them energy. Q& A: Writing the future Q&A with Joanne Musselle Group Chief Underwriting Ofcer 16 Opportunity knocks Q&A with Paul Cooper Group Chief Financial Ofcer 38 Tech savvy Q&A with Stéphane Flaquet Group Chief Operations and Technology Ofcer 50 Brand ambassador Q&A with Regine Fiddler Chief Marketing Ofcer, Hiscox USA 68 Going places Q&A with Jon Dye Chief Executive Ofcer, Hiscox UK 78 People person Q&A with Nicola Grant Group Chief Human Resources Ofcer 102 Re invention Q&A with Matthew Wilken Chief Underwriting Ofcer, Hiscox Re & ILS 144 Network news Q&A with Markus Niederreiner Managing Director, Hiscox Germany 152 Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chapter 1 2 Performance and purpose 2 Hiscox Ltd Report and Accounts 2022 Our purpose, values, culture and vision Nelson Mandela famously said that ‘a good head and a good heart are always a formidable combination’ and I’m pleased to say that both feature heavily in our culture. But having a great culture is not a destination – it takes a continuous commitment to creating and maintaining an environment where people do their best work and quite frankly where they enjoy coming to work. We reect on our culture regularly, we consider how we listen and respond to feedback from colleagues and we’re not afraid to explore new ways of doing this. People recognise the uniqueness of the Hiscox culture and that makes me really proud.” Aki Hussain Group Chief Executive Ofcer Human Clear, fair and inclusive Integrity Do the right thing, however hard Courage Dare to take a risk Ownership Passionate, commercial and accountable Connected Together, build something better Our values We give people and businesses the condence to realise their ambitions. Our purpose 3Hiscox Ltd Report and Accounts 2022 Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chapter 1 2 Performance and purpose Our purpose, values, culture and vision In our 2022 annual global employee engagement survey, which was completed by 88% of employees: 8 1% said they would recommend Hiscox as a great place to work. 84% said they felt proud to work for Hiscox. During 2022, we: 390 promoted 390 existing employees. 70,000 delivered over 70,000 hours of staff training worldwide. 76% said they believe Hiscox has an outstanding future. 645 attracted 645 new talented permanent employees. Our purpose We give people and businesses the condence to realise their ambitions. To do this we need differentiated products and services, great talent and energised and connected teams. Success is measured in our reputation and nancial performance. Our vision For Hiscox to be the leading specialist insurer in material markets – not the biggest, but the most respected. We want to be known by customers for being true to our word, by our employees as a great place to work and grow for those who are ambitious and talented, and as an industry leader in growth, prots and value creation. Our values We have had a strong set of values for decades and they are incredibly important to us; we talk about them often and they guide our decision-making. We want our values to differentiate us, which is why they play an important part in our strategy and how we operate, in being a business our customers can relate to, and in providing all employees with a work environment in which they can ourish. We periodically review our purpose, values, culture and vision to ensure they are still true to the business and t for the future. 20 22 20 21 20 20 20 19 20 18 701.2 739.8 689.0 768.2 798.6 20 22 20 21 20 20 20 19 20 18 608.2 648.6 601.5 670.6 726.2 20 22 20 21 20 20 20 19 20 18 1.7 8.1 (11.8) 2.2 5.3 2022 20 21 20 20 20 19 20 18 4,424.9 4,269.2 4,033.1 4,030.7 3,778.3 20 22 20 21 20 20 20 19 20 18 2,928.2 2,919.9 2,752.2 2,635.6 2,573.6 20 22 20 21 20 20 20 19 20 18 44.7 190.8 (268.5) 53.1 135.6 20 22 20 21 20 20 20 19 20 18 12.1 55.3 (91.6) 17.2 41.6 20 22 20 21 20 20 20 19 20 18 36.0 34.5 0.0 13.8 41.9 20 22 20 21 20 20 20 19 20 18 90.6 93.2 114.5 106.8 94.4 4 Hiscox Ltd Report and Accounts 2022 Our key performance indicators (KPIs) Gross premiums written $4,424.9m Net premiums earned $2,928.2m Prot/(loss) before tax $44.7m Combined ratio 90.6% Basic earnings/(loss) per share 12.1¢ Ordinary dividend 36.0¢ Net asset value per share 701.2¢ Tangible net asset value per share 608.2¢ Return on equity 1.7% Financial KPIs Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chapter 1 2 Performance and purpose 20 22 20 21 20 20 20 19 20 18 4.6 4.8 4.8 4.8 4.7 20 22 20 21 20 20 20 19 20 18 82% 64% 68% 71% 74% 20 22 20 21 20 20 20 19 2018 96% 95% 90% 99% 99% 20 22 20 21 20 20 20 19 2018 79% 71% 69% 78% 76% 2022 20 21 20 20 20 19 2018 92% 92% 92% 89% 90% 0.0 12.5 25.0 37.5 50.0 62.5 75.0 87.5 100.0 20 22 20 21 20 20 20 19 2018 16.0% 19.1% 21.2% 26.1% 28.8% 5Hiscox Ltd Report and Accounts 2022 Non-nancial KPIs UK gender pay gap 16.0% We measure and monitor the gender pay gap globally so that, by understanding it, we can continue to nd ways to reduce it. In the UK, we have been annually disclosing our UK gender pay gap since 2017, and have seen a steady reduction over time in our UK gender pay gap on a mean basis. Improving diversity, equity and inclusion at Hiscox is a high priority, and this year we have also enhanced our ethnicity reporting to disclose all-staff ethnicity data for the rst time (see page 59). London Market broker satisfaction 79% Each year, we survey our London Market broker partners to understand more about their experience of working with Hiscox throughout the year. Their feedback is a reection of our products and service levels, so receiving consistently good scores matters to us. UK customer satisfaction 92% In the UK, customers who speak to one of our insurance experts in our customer experience centre in York are asked to rate their experience of Hiscox at the end of the call. Whether they have phoned for advice, a quote, to purchase a new policy or make changes to an existing one, their feedback helps us to constantly improve our service. Employee engagement 82% Our annual global employee engagement survey looks at how connected we feel to Hiscox, our managers, teams and roles. The results are shared widely and heavily inuence our people strategy. Improving our employee engagement scores was a strategic priority in 2022 as part of our work around building connected teams with shared values and we are pleased to report our highest score in ten years. Germany customer satisfaction 96% Germany is our largest operation in Continental Europe, and here we ask all customers that purchase a policy to provide feedback on their experience so that we can continue to improve our service. This includes quantitative analysis on their experience with us and qualitative insight on what they were satised with, whether they would recommend Hiscox, and any areas for improvement, so we are pleased to have maintained consistently high scores over time. US customer reviews using Feefo 4.6/5 In the USA, we ask customers to review their experience of Hiscox post-purchase. We do this using Feefo, which has a ve-star rating system, and are pleased to maintain such high scores year after year, even as the business grows. Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chapter 1 2 Performance and purpose Our key performance indicators (KPIs) 6 Hiscox Ltd Report and Accounts 2022 A strategy focused on high-quality growth The Hiscox Group comprises four businesses facing different opportunities and challenges, but with a common set of capabilities and the capital support required for success. Our strategy and how we operate Over the years, we have built a strong reputation as a specialist insurer in our chosen segments. In our big-ticket businesses – Hiscox London Market and Hiscox Re & ILS – we focus on building balanced portfolios through controlled growth and with an emphasis on leading the business we write. • Global risks through Lloyd’s platform • Heritage of deep technical expertise • Leading the market in applying technology to distribution and underwriting Delivers prots and capital generation for reinvestment • Small and micro businesses • Digitally traded, with low-cost distribution and auto-underwriting • Partnership management capability through digital connectivity Signicant structural growth opportunity • Specialist reinsurance capability • Holistic risk insights • Expert alternative capital manager Delivers underwriting prot and capital-light fee income • Focus on SMEs, not traded digitally • Leadership in specialist lines • Long-term broker partnerships Delivers stable prot generation and growth In Retail, where more stable returns have typically offset the greater volatility of our big-ticket businesses, we focus on building a differentiated brand and product offering that customers value. Volatility exists in every part of insurance, but through a focus on building and People and culture Brand Underwriting Technology Capital Balanced portfolio of large and complex risks SME and personal lines H i s c o x L o n d o n M a r k e t H i s c o x R e t a i l : d i g i t a l H i s c o x R e t a i l : t r a d i t i o n a l H i s c o x R e & I L S maintaining balanced portfolios we create more manageable volatility across the Group and are well positioned to maximise both the protable, cyclical growth and the structural growth opportunities ahead. Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chapter 1 2 Performance and purpose 7Hiscox Ltd Report and Accounts 2022 Our strategy in practice Opportunity There is an abundance of opportunity ahead for Hiscox. In many of our chosen lines and markets, our market shares remain small, giving us plenty of headroom for growth. This is where our specialist knowledge and multi-year investments in digital trading differentiate us. Innovation The insurance industry consists of an ecosystem of different types of business; there are the ‘wave surfers’ for example, who enter the market on the upside of opportunity and retreat when it recedes. Hiscox aims to be a ‘game changer’ and here for the long term: innovating through long-held market experience and underwriting acumen, embracing technology, taking risks to evolve with and lead market change and being there for our customers. Growth Growth is important to us, but not at the expense of protability. That’s why our focus is on maximising the structural growth opportunities ahead as we see them in Retail, and in building out balanced portfolios in our bigger-ticket businesses where we currently see exceptional market conditions. Volatility Our business is naturally exposed to volatility. We manage this through our underwriting experience and expertise, our investment in data, and our risk management processes, and we work hard to ensure the risks we take are commensurate with the premium that is paid. A differentiated offering Global reach We are a truly international business, with over 3,000 employees across 14countries. We invest in local market knowledge and experience to truly understand the markets we operate in and provide relevant products and services. This gives us a unique breadth of expertise, serving customers from sole traders to multinational companies and ILS investors. Specialist products In every part of the Hiscox Group, we focus on providing products and services that differentiate us. These range from high-value home insurance and ne art – areas where we have deep foundations to build on – to small business, ood and kidnap and ransom – where innovative products and service set us apart. Claims experience Being true to our word is the cornerstone of our claims service. We know that each customer and each claim is different, which is why we have embedded experienced claims teams with specialist product knowledge in every part of our business. Talented people The quality of our people is a crucial factor in our continuing success. Their expertise, energy and commitment drive our reputation for quality and professionalism. In return, we aim to provide a work environment that brings out the best in everybody and rewards hard work. Powerful brand We have invested signicantly over many years to build a recognised and renowned brand. Our distinctive marketing campaigns are developed from a deep understanding of our customers and positively contribute to consumer buying decisions. Our strength lies in our mix of business, our brand and culture, our people and specialist expertise underpinned by investments in technology. These hard won attributes, combined with a clear strategy and focus on execution, position us well for the road ahead.” Aki Hussain Group Chief Executive Ofcer Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chapter 1 2 Performance and purpose Our strategy and how we operate 8 Hiscox Ltd Report and Accounts 2022 Key risks The risk As an insurance group, specic risks related to our business include: Risk landscape and how we manage the risk Strategic risk The possibility of adverse outcomes resulting from ineffective business plans and strategies, decision-making, resource allocation or adaptation to changes in the business environment. The Group’s continuing success depends on how well we understand our clients, markets and the various internal and external factors affecting our business, and having a strategy in place to address risks and opportunities arising out of this. Not having the right strategy could have a detrimental impact on protability, capital position, market share and reputation. We consider strategic risks in a holistic way, to better prepare our business for emerging threats, shifting trends, and opportunities in the environment in which we operate. During 2022, we have remained vigilant to potential adverse impacts of economic, geopolitical, social, technological and regulatory developments on our Group strategy. Our Group strategy was refreshed during 2022 under new Group Chief Executive Ofcer Aki Hussain, with a clarity of focus on consistent delivery from our big-ticket businesses, accelerated growth in Retail digital and balanced growth in Retail traded, and has been communicated across the business throughout the year. The external environment remains complex, uncertain and changeable but our robust strategy means that despite the external headwinds there remains tremendous opportunity for Hiscox in each of our chosen segments. Underwriting risk The risk that insurance premiums prove insufcient to cover future insurance claims and associated expenses. Likely causes include failing to price policies adequately for the risk exposed, making poor risk selection decisions, allowing insurance exposures to accumulate to an unacceptable level, or accepting underwriting risks outside of agreed underwriting parameters. This includes people, process and system risks directly related to underwriting, and considers emerging external risks such as climate, geopolitical and changing customer trends. We continue to improve the quality and balance of our portfolios, strengthening our pricing and risk selections, and growing where the opportunities are commensurate with the risk. In 2022, we navigated a set of complex external conditions which amplied underwriting risks. These ranged from geopolitical tensions (notably, the Russia/Ukraine conict), macroeconomic shifts (particularly increased inationary pressures in most Western economies), emerging societal trends (such as increased propensity to litigation), and the continued potential impact of climate change. Our active monitoring and enhanced view of economic and social ination, impact from supply chain disruptions, heightened threat of cyber attacks, and emerging litigation trends, allowed Hiscox to respond promptly, ensuring our pricing keeps pace with costs. We have updated and evolved our view of property exposure risks from natural catastrophes inuenced by climate change through our set of realistic disaster scenarios (see pages 46 to 47). Our underwriting exposure remains well within our Board-approved risk appetite levels. We are also investing in the underwriters of the future with the roll-out of our innovative and award-winning faculty of underwriting training academy, helping manage and mitigate underwriting talent risks. Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chapter 1 2 Performance and purpose * The key risks to which we refer here, and elsewhere in this document, also constitute the emerging and principal risks required under the UK Corporate Governance Code 2018. 9Hiscox Ltd Report and Accounts 2022 The market landscape remains complex and changeable and we have utilised our good risk management practices to protect and create value for customers, employees, our business and investors.” Hanna Kam Group Chief Risk Ofcer The risk Risk landscape and how we manage the risk Reserving risk The Group makes nancial provisions for unpaid claims, defence costs and related expenses to cover liabilities both from reported claims and from ‘incurred but not reported’ (IBNR) claims. Reserving risk relates to the possibility of unsuitable case reserves and/or insufcient outstanding reserves being in place to meet incurred losses and associated expenses, which could affect the Group’s future earnings and capital. Our consistent and prudent reserving philosophy serves to manage the risk of insufcient reserves to cover claims cost and associated expenses. The Group’s reserve levels continue to be resilient, and we have completed two legacy portfolio transactions in 2022, which will further limit the potential for reserve volatility. We have responded to the heightened inationary environment with a detailed review of our key ination assumptions against emerging experience and explicitly allowed further reserve margins for uncertainty. Close monitoring of developments will continue in 2023. Credit risk The risk of a reinsurance counterparty being subject to a default or downgrade, or that for any other reason they may renege on a reinsurance contract or alter the terms of an agreement. The Group buys reinsurance as a protection, but if our reinsurers do not meet their obligations to us, this could put a strain on our earnings and capital and harm our nancial condition and cash ows. Similarly, if a broker were to default, causing them to fail to pass premiums to us or pass the claims payment to a policyholder, this could result in Hiscox losing money. In 2022, many of our counterparties have faced the same external conditions as we have, and there remains an increased threat of global recession, which would in turn increase default risk. We have closely monitored our counterparty exposures during the year, and while the risk factors have increased, our credit exposures remain within the Group’s risk appetite. We have taken into account the potential economic outlook in our decision-making on outwards reinsurance purchasing for 2023. Market risk The threat of unfavourable or unexpected movements in the value of the Group’s assets or the income expected from them. This includes risks related to investments – for example, losses within a given investment strategy, exposure to inappropriate assets or asset classes, or investments that fall outside of authorised strategic or tactical asset allocation limits. The volatile economic environment during 2022, with sharp rises in ination and accelerated interest rate increases, has enhanced risk in our asset portfolios. Investment losses in the year are largely due to mark-to-market adjustments to the value of bond portfolios, which are unrealised. These have potential for signicant upside for 2023. Active decisions over 2022 have made a positive contribution to the investment result, offsetting some of the losses, and the outlook for market (asset) risk is expected to improve. Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chapter 1 2 Performance and purpose Key risks 10 Hiscox Ltd Report and Accounts 2022 Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chapter 1 2 Performance and purpose Key risks The risk Risk landscape and how we manage the risk Liquidity risk This relates to the risk of the Group being unable to meet cash requirements from available resources within the appropriate or required timescales, such as being unable to pay liabilities to customers or other creditors when they fall due. It could result in high costs in selling assets or raising money quickly in order to meet our obligations, with the potential to have a material adverse effect on the Group’s nancial condition and cash ows. We have refreshed our liquidity stress testing during 2022 and the Group remains in a strong liquidity position, with around $1 billion of fungible liquidity, sufcient to cover expiring debt obligations, business plan liquidity requirements, and working capital headroom. Liquidity risk is monitored through the use of a detailed Group cash ow forecast which is reviewed by management quarterly, or more frequently as required. Regulatory, legal and tax governance This relates to the risk that the business fails to act, or is perceived to have failed to act, in accordance with applicable legal, regulatory, and tax requirements in all of the jurisdictions where the Group operates. The regulatory, legal and tax environment continues to be complex, with frequent changes in rules and expectations which increase complexity in this area. We monitor the regulatory, legal and tax compliance landscape for emerging changes to local and international laws and regulations in the jurisdictions we operate. The regulatory landscape in 2022 was dominated by the rapid application of a large volume of international sanctions against Russian interests following the invasion of Ukraine, which applied at different points throughout the year across all of our operations worldwide. Our embedded sanctions management processes enabled the compliance team to support the business in quickly responding to the complex and fast-changing sanctions landscape and we also supplemented our sanction-screening processes with additional reviews of the ultimate benecial owners of a large number of insured risks across multiple business lines. The most signicant tax compliance development in 2022 has been the continued movement towards implementation of the OECD’s Global Anti-Base Erosion Model Rules (Pillar Two) at a local level. As well as maintaining a watching brief on the evolution of this initiative, we have also worked with expert advisors and industry bodies such as the Association of Bermuda Insurers and Reinsurers and the Association of British Insurers to ensure industry-specic issues are identied and addressed. We seek to work transparently and collaboratively with our key tax authority stakeholders to anticipate the tax impact of both commercial and legislative changes. We invest in proactive engagement with all of our regulators, including through our participation in the annual college of supervisors, hosted by the Bermuda Monetary Authority, which is an opportunity to update all of our regulators together on strategic developments across the Group. 11Hiscox Ltd Report and Accounts 2022 Read more on risk management in chapter 2 and note 3. 44 180 The risk Risk landscape and how we manage the risk Operational risk The risk of direct or indirect loss resulting from internal processes, people or systems, or from external events. This includes cyber security risk, which is the threat posed by the higher maturity of attack tools and methods and the increased motivation of cyber attackers, in conjunction with a failure to implement or maintain the systems and processes necessary to protect the condentiality, integrity or availability of information and data. Operational risk also covers the potential for nancial losses, and implications from a legal, regulatory, reputational or customer perspective, for example, major IT, systems or service failures. Risks from people, process, systems and external events are closely monitored by senior executives across the business. Ongoing competition and retention of talent, heightened threat of cyber attacks and continued growth in hybrid working practices is affecting the operational risk landscape. Our approach to monitoring operational risk has been adapted to enable the business to monitor the risks with a focus on promoting risk awareness and proactive reporting of operational incidents. We continue to embed our operational risk management including our defences against, and response to, cyber threats. During 2022, we reviewed the Group-wide set of crisis management response plans and performed a series of cyber crisis simulations to give our teams rst-hand experience of dealing with a situation, and to test our response plans against potential operational disruption. Talent risk is also being actively managed as part of a continued focus on our employee proposition, which has included the introduction of our all-staff share ownership initiative, HSX:26, and which in 2023 will include new ways to develop and map talent across the Group. In addition, in 2022 mandatory monthly all-staff training was supplemented with additional topical modules such as sanctions, cyber security and risk culture throughout the year. We also delivered additional training to underwriting and claims teams on the sanctions developments referred to under the regulatory, legal and tax governance section (see page 10). Climate change related risk This relates to the range of complex physical, transition and liability risks arising from climate change. This includes the risk of higher claims as a result of more frequent and more intense natural catastrophes; the nancial risks which could arise from the transition to a lower-carbon economy; and the risk that those who have suffered loss from climate change might then seek to recover those losses from others who they believe may have been responsible. Climate change related risk is not considered a stand-alone risk, but a cross-cutting risk with potential to amplify each existing risk type. We monitor climate change related risk through a number of lenses, including underwriting selection, pricing, multi-year view of natural catastrophe risk, asset types, and developments in potential climate litigation. Every year we run a range of realistic disaster scenarios, updated with our in-house climate research (see pages 46 to 47), and we participate in regulatory stress testing exercises. We have introduced investment environmental, social and governance (ESG) dashboards for each of our insurance carriers and we continue to embed our greenhouse gas targets for the Group, which in 2023 will include the development of a supporting action plan. Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chapter 1 2 Performance and purpose Key risks 12 Hiscox Ltd Report and Accounts 2022 Getting the balance right between risk and opportunity is crucial. Our business priorities for 2023 build on our 2022 achievements, and I’m particularly excited about what technical excellence means for us in the year ahead and how that plays out against a backdrop of retail growth and huge big-ticket opportunity.” Joanne Musselle Group Chief Underwriting Ofcer Business priorities for 2023 Following multi-year investments in technology, in 2023 we will focus on realising the opportunities that exist across Hiscox Retail. This means further leveraging our head start in digital small business insurance by building an SME ecosystem through which to serve this high-growth segment of the economy, and investing in brand. Having nalised systems transformation in the USA, and as new systems continue to come on board across Europe, we are well positioned to cater to changing buying behaviours with efcient customer-focused processes. 1 Realising the retail opportunity 2 Managed volatility during big-ticket growth Hiscox London Market and Hiscox Re & ILS continue to enjoy favourable market conditions in many lines. As in 2022, we will remain focused on leveraging our unique combination of underwriting and digital expertise to grow protably – particularly in those areas where we have market-leading expertise and experience – while also managing volatility. In addition, we will sharpen our focus on potential new emerging opportunities, for example, around supporting the economy to transition to low-carbon intensity industries. Business priorities for 2023 We will balance risk and opportunity in 2023 through a focus on ve core priorities. Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chapter 1 2 Performance and purpose 13Hiscox Ltd Report and Accounts 2022 3 Technical excellence 4 Operational leverage 5 Connected and energised teams Technical excellence is a multi-year priority thanks to a long-held focus on active underwriting portfolio management. We continue to focus on portfolio optimisation – addressing lower decile lines through careful management, and clearing the path for growth in top quartile lines, as well as those areas experiencing favourable market conditions. During 2023, we will continue to develop our technical capabilities, insights and tracking mechanisms, and further dene our sustainable underwriting strategy. Steps taken to evolve our operating model during 2022 are already enhancing ownership and speed of decision-making, and we will have a similar focus on operational leverage in 2023. Beyond the rebalancing of our global versus local capabilities, this will mean further establishing technology as a competitive advantage, particularly in Hiscox Retail. It will also mean enhancing our process management capabilities to improve efciency and effectiveness and increase the speed of execution, to support the Group not only through its next phase of growth, but also as we look to realise economies of scale through a sharpened focus on expense efciency. We will build on the strong progress made in 2022 to embed hybrid working and develop new employee benets such as an enhanced sabbatical policy, the introduction of Hiscox days and HSX:26 – our all-staff share ownership initiative. The next stage of employee proposition development will happen during 2023, in line with our ambitions to be an employer of choice within our sector. In addition, we will look to nd new ways to develop and map talent across the Group that can support the delivery of our strategy. Business priorities for 2023 We will balance risk and opportunity in 2023 through a focus on ve core priorities. Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chapter 1 2 Performance and purpose Business priorities for 2023 14 Hiscox Ltd Report and Accounts 2022 Why invest in Hiscox? We are facing some of the most attractive market conditions we’ve seen in years, with tremendous pricing opportunities in big-ticket lines and a chance to substantially grow our market share in retail. Every part of our business is structurally and nancially well positioned to contribute to our continued growth, with solid foundations that can support the weight of our ambitions.” Paul Cooper Group Chief Financial Ofcer A focus on generating sustainable and compounding shareholder returns We aim to balance consistent and progressive shareholder cash returns with reinvestment into the business to support long-term growth and value creation, and as we face into favourable market conditions in our big-ticket businesses, we have sufcient capital to realise the attractive opportunities ahead. A unique structural growth opportunity We aim to grow the business in a way that is organic, sustainable and protable, and the abundance of opportunity we see ahead supports this continued trajectory. In Hiscox Retail, where we are focused on building scale, our market shares remain modest and the size of the addressable market is huge, giving us plenty of headroom for growth. In our big-ticket businesses, where we now lead on more open market risks, our combination of underwriting and digital expertise differentiates us. 15 5% total shareholder return over the last ten years. $ 1.7 b n returned to shareholders over the last ten years. A rated over ten years of S&P A rating. $1b n Over $1 billion in premium delivered by Hiscox Re & ILS for the rst time in 2022. 50m SMEs size of the addressable SME market across the UK, USA and Europe. O v e r 1. 5 m total number of retail customers across the Group. Two-thirds Hiscox London Market currently leads over two-thirds of the business it writes. 90% Hiscox London Market combined ratio below 90% for three consecutive years. $269.5m underwriting prot † in 2022, the best in seven years. * Based on special, ordinary and Scrip Dividends paid to shareholders since 1January2013. Excludes the nal dividend proposed for 2022. † Underwriting prot is dened as segment income less expenses, excluding investment result, for Retail, London Market and Re & ILS. See note 4 on page 194. Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chapter 1 2 Performance and purpose 15Hiscox Ltd Report and Accounts 2022 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 5,000 4,500 4,000 3,500 3,000 2,500 2, 000 1 ,500 1 ,000 500 0 Hiscox Retail Hiscox London Market, Hiscox Re & ILS 1,928 2,033 1,901 2,587 2,951 2,570 2,690 2,585 2,669 2,839 3,008 3,268 3,310 3,625 3,652 4,224 4,530 4,532 4,795 4,935 2003 Big-ticket business Hiscox Re & ILS Hiscox London Market Retail business Hiscox UK Hiscox Europe Hiscox Special Risks Hiscox USA Hiscox Asia * 2020 restated for Hiscox Special Risks. Total Group controlled premium ($m) Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chapter 1 2 Performance and purpose Why invest in Hiscox? 16 Hiscox Ltd Report and Accounts 2022 Q& A: with Joanne Musselle Group Chief Underwriting Ofcer Writing the future Shaping the future of underwriting means embracing risk, investing in data and analytics, and taking a fresh approach to training underwriters. > 17Hiscox Ltd Report and Accounts 2022 18 Hiscox Ltd Report and Accounts 2022 Q: You’ve been with Hiscox for over two decades now – what was it that drew you here in the rst place? A: I’d been busy working for some of the big corporates, always in the technical areas, whether it be on the reserving side, pricing, underwriting or claims. I’d been in Asia for about ve years, working for big global insurers, when I got a call about a role at Hiscox. I knew Hiscox from the syndicate side, but back then the retail company was tiny, with premiums of just over £200million. And there was something in it that really struck a chord. It was like a green-eld site. So when I met some of the team, the idea of helping build out the retail side sounded really exciting. And unlike the big global insurers it was already customer-centric rather than product-centric, which really appealed to me. What I didn’t know then was that I would be coming for 20 years! Q: So what is it that’s kept you here so long? A: Lots of things, but rst and foremost the values – you can’t stay somewhere for that long if the values don’t chime with your own. And then it’s the people. There is just this rare quality to the people I work with: professional, brilliant at what they do, experts, collaborative. I don’t nd it hierarchical either. It’s genuinely ‘best answer wins’. We want to get to the best answer, and that can come from anyone at any time. I love that courage is one of our values, because it gives you license to say: “I know everybody wants to turn left, but I want to turn right. Can we discuss why...” Q: For the past couple of years, you’ve been the Group Chief Underwriting Ofcer. What does that involve? A: It’s all about the technical side – the risk selection, pricing, exposure management, reinsurance, product development, wording. We have six business-unit-focused Chief Underwriting Ofcers around the Group who are responsible for the day-to-day execution of our strategy, but my job is to set that strategy with the Board. It’s big things like how much risk we want to take, what new areas we may want to move into, how we structure our propositions and how we think about emerging risks. I always think that no matter what role you’ve got, it has three parts to it. The rst part is just doing the job well, doing those things I’ve just mentioned. The second is evolving the role for the future, investing in things like data and analytics. And then the nal part, which is the most important, is people: making sure we’re engaging, attracting and developing the people around us. Q: How has Hiscox’s approach to underwriting evolved in recent years? A: It’s obviously been a complex period for everyone, and like the rest of the world we’ve had to navigate our way through some unprecedented situations. Our focus on data and analytics is denitely giving us a better understanding of how a book of business is performing. But I’ve been really keen not just to respond to the here and now, but really think about where we want to take the organisation. We’ve spent a huge amount of time and energy on something we’re calling ‘underwriting evolution’. Part of this is around critically assessing our portfolios. Are we in the right lines? Are our portfolios structurally protable? How are we assessing emerging risk? Do we need to develop new propositions, new products? I think our portfolios are probably now in their best shape for a long time, but there’s always more we can do. Q: So where else do you think the portfolio should go? A: Like others in the industry, our commitment to sustainable underwriting means we’ve got an exclusion strategy – that’s focused on eliminating our underwriting exposure to some of the worst carbon emitters, like coal plants, by 2030. But exclusion isn’t enough. We’ve always invested heavily in climate and climate research and we’re a big natural catastrophe underwriter, so we’ve got a lot of technical expertise in that space, and we can utilise that expertise to help build out products around changing risks such as ood. We can also help our customers to navigate the low carbon transition, for example, in big-ticket lines where we’re providing liability cover for decommissioning fossil fuel infrastructure or where we’re supporting the installation of renewables. We’re a niche and specialist insurer, so we’re not going to be able to play everywhere, but we need to be challenging ourselves on our role in the transition as best we can. Q& A: with Joanne Musselle Group Chief Underwriting Ofcer Joanne Musselle has been with Hiscox since 2002 and held a number of senior positions in both claims and underwriting. In 2019, she became Group Chief Underwriting Ofcer, driving rigorous standards and using data and analytics to meet the challenges of the future. 19Hiscox Ltd Report and Accounts 2022 Another thing that plays into this, and it’s going to be a big focus of mine in 2023, is what I call ‘risk mitigation’. It’s something I’m really passionate about. If you have a house, there’s a risk your house might ood. You buy insurance to transfer that risk. But if we can mitigate that risk, if we can help you as a homeowner prevent a ood taking place, that’s good for you, it’s good for us and it’s good for society. Reducing that risk also feeds back into our pricing. We’ve done a couple of things already, like LeakBot – a device that we’ve given to our homeowners which shuts off the mains if there’s a leak. We’ve also spent a huge amount of time looking at cyber resilience for small businesses, putting in place really practical tools that can empower them to mitigate their cyber risk. Q: What kind of opportunities are being opened up by advances in data and analytics? A: One of my jobs is risk selection and making sure that we really understand the risks we underwrite, so we need to utilise data for that to improve our performance. But we’re also thinking about how we utilise data to improve the customer experience. For example, you might ask a customer tens of questions when they buy insurance from you, but if some of those answers already exist externally, then can you pull that information together in such a way that results in you asking the customer less questions? And then, also thinking about how to use data and technology to reduce our costs. That’s really important, because if we’ve got lower costs, we can reect that back to our customers in terms of pricing. Q: What’s your approach to training and developing underwriters? A: Recently, we’ve been building out what we call the ‘faculty of underwriting’. We spent a lot of time coming up with the capabilities that we think an underwriter of the future will need, but we spent just as much time thinking about how we deliver those capabilities. I’ll give you an example. The old model was to sit in training sessions for days on end, staring at PowerPoints. But people these days don’t learn like that. They want to learn in quick, bite-sized bursts, so we’ve partnered with a gaming company to develop training apps that tap into the psyche of competition, presenting underwriting questions in a really addictive way. We hadn’t anticipated quite how competitive our people would be, and we’ve got people doing these modules eight, nine, ten times to keep improving their score which is brilliant. Q: Outside of work, what gives you energy? A: My family and friends for sure. I’m a mum of two teenagers, so it’s like living in student accommodation at the moment! More personally, I just get a buzz out of a run. I am not an Olympic runner, I’m never going to win a race, but for me, for my mental health, just to clear my mind, I absolutely love it. You don’t need anybody else and you can do it anywhere in the world – just put on your trainers and off you go. If you have a house, there’s a risk your house might ood. You buy insurance to transfer that risk. But if we can mitigate that risk, if we can help you as a homeowner prevent a ood taking place, that’s good for you, it’s good for us and it’s good for society.” There is just this rare quality to the people I work with: professional, brilliant at what they do, experts, collaborative. I don’t nd it hierarchical either. It’s genuinely ‘best answer wins’. We want to get to the best answer, and that can come from anyone at any time.” Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chapter 1 2 Performance and purpose 20 Hiscox Ltd Report and Accounts 2022 Chairman’s statement It has been a pivotal year for Hiscox, with new leadership and an evolved strategy being tested by a turbulent operating environment, and I am very pleased with our performance.” Robert Childs Chairman Before I provide my usual commentary on the business, we have announced with our 2022 results that I will be stepping down as Chairman during 2023, and the Board has commenced the search for my successor. After 37 years at Hiscox and 50 in the industry I am very happy that I will be passing the baton when the business is in such a good place – excellent leadership, strongly capitalised, with favourable market conditions and huge opportunities ahead. An important job for any Chairman is overseeing a Chief Executive transition and I have been glad not only to ensure a seamless transition from Bronek to Aki, but also to work more closely with Aki in this, his rst year as Group Chief Executive Ofcer. Aki has brought new insights and developed a strong talented Executive team, and when the time comes, I will retire a happy shareholder. And now for the balance of my report. Performance It has been a pivotal year for Hiscox, with new leadership and an evolved strategy being tested by a turbulent operating environment, and I am very pleased with our performance. Although it has been an active year for catastrophes, both man-made and natural, we have made a strong underwriting prot of $269.5 million thanks to the discipline of our teams. This good performance has been offset by unrealised investment losses on our bond portfolios, but we expect these to unwind as our bonds mature. An important job for any Chairman is overseeing a Chief Executive transition and I have been glad not only to ensure a seamless transition from Bronek to Aki, but also to work more closely with Aki in this, his rst year as Group Chief Executive Ofcer. Aki has brought new insights and developed a strong, talented Executive team. Aki has embedded a rened strategy that is reducing the volatility prole for the Group. He has also assembled an impressive team who are delivering technological and operational changes that are being well received by both business partners and our people. People We had to navigate a challenging employment market during the year, as the war for talent continued. I am therefore pleased that we have not only maintained top talent, but also attracted many more. Aki’s rst key appointment was Paul Cooper, our Group Chief Financial Ofcer, who joined the business in May. He has over 25 years of nancial services experience across both the retail and Lloyd’s insurance markets and is already bringing valuable external perspectives to our organisation. I remember Paul from his previous time at Hiscox, when he was Finance Director for Hiscox UK and Europe, and have enjoyed working with him again. After 15 years with the Group, Amanda Brown, our Chief Human Resources Ofcer retired during 2022, and I would like to thank her for her sage counsel and 21Hiscox Ltd Report and Accounts 2022 Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chairman’s statement Chapter 1 2 Performance and purpose 22 Hiscox Ltd Report and Accounts 2022 I am extremely proud that we are reporting our best employee engagement score for ten years. Not only do the overwhelming majority of our people feel proud to work at Hiscox (84%), they would also recommend Hiscox as a great place to work.” clarity of thought over the years, which I have personally valued and so too has our Board. She has been succeeded by Nicola Grant, who joined us from ING Group and brings a wealth of experience in engaging and leading large workforces across multiple markets. At the same time, Jon Dye joined as Hiscox UK Chief Executive Ofcer. Jon is a recognised industry leader with solid CEO experience and a fantastic track record of building protable businesses. His broker relationships, leadership and energy are already making a difference. These appointments, along with the promotion of Stéphane Flaquet to Group Chief Operations and Technology Ofcer, have resulted in a very capable new Group Executive Committee formed under Aki’s leadership. Beyond the top team, I am extremely proud that we are reporting our best employee engagement score for ten years. Not only do the overwhelming majority of our people feel proud to work at Hiscox (84%), they would also recommend Hiscox as a great place to work (81%) and believe that Hiscox has an outstanding future (76%). Aki has to take a lot of credit for this, along with his leadership team. Environmental, social and governance (ESG) In a year of pronounced geopolitical and macroeconomic challenges, ESG has not been far from our minds and conversations. Aki will cover in his Chief Executive’s report the environmental and governance aspects that the business has been thinking about, and the huge amount of work that has been done to support Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chairman’s statement Chapter 1 2 Performance and purpose 23Hiscox Ltd Report and Accounts 2022 risks. The opportunities in our big-ticket businesses are huge and the rating environment is with us in a way that you could argue we haven’t seen for decades. We will still be trimming the sails in various places, recognising our lower volatility prole, but there is nothing like a price rise to reduce volatility. The opportunities are equally huge in our retail businesses, where the hard work over the last three years to replace core systems is reaching a point where they can propel these businesses in their next growth phase. With new leadership in Hiscox UK and strengthened leadership in Hiscox USA and Hiscox Europe, each business is attractively positioned for what lies ahead. In concluding this, my last Chairman’s statement, I truly believe we are on the cusp of something great – ready to make the most of the excellent markets before us. Robert Childs Chairman 8 March 2023 Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chairman’s statement Chapter 1 2 Performance and purpose our colleagues on the ‘social’ side of ESG. But as Chair of the Hiscox Foundation in the UK, our charitable foundation, I am especially proud that we have donated $1.8 million to good causes this year. This has included one-off support and multi-year partnerships, in line with our three strategic pillars of charitable giving, as well as targeted donations that recognise the Russia/Ukraine conict, oods in Pakistan, and the rising cost of living where – to reect the rising costs that charities are facing – we increased our donations to multi-year partners in line with ination for the current nancial year. It is also why we are working with MyBnk for an extended period to support their delivery of expert-led nancial education to school children and young people across the UK, recognising the importance of learning nancial capability skills from a young age. I know that playing an active part in our communities matters to our people too because they spent over 1,400 hours volunteering during 2022, supporting not only some of our ofce charity partners such as Spear Bethnal Green and Colchester Foodbank, which are chosen by employees, but also causes that are personally important to them. Outlook We live and work in turbulent geopolitical times and this is where the insurance market can come into its own. As a specialist insurer offering coverage across classes that include political violence, kidnap and ransom, cyber, the full range of professional indemnity and property damage, we are well placed to help customers manage their 24 Hiscox Ltd Report and Accounts 2022 Chief Executive’s report I am very pleased with the progress made across the Group during 2022, as we delivered the strongest underwriting result in seven years. We have a rened strategy, a new experienced and energetic leadership team, we have made signicant progress in rolling out new generation technology in the USA and Europe and we are enjoying our highest employee engagement scores in ten years.” Aki Hussain Group Chief Executive Ofcer In my rst year as Group Chief Executive Ofcer, I am pleased to report the Group delivered a strong result during a year of heightened geopolitical uncertainty, economic unpredictability and natural catastrophe losses. An underwriting prot of $269.5million (2021:$215.6million) and a combined ratio of 90.6% (2021:93.2%) is a testament to the disciplined execution of our strategy of building more balanced portfolios to drive reduced earnings volatility. The current complex underwriting environment presents opportunities for businesses like ours, with underwriting excellence at the core, backed by a strong balance sheet. I am excited about the hard market in reinsurance, which is a necessity to reverse multi-year losses suffered by the industry. These are the best conditions we have seen in over a decade and our talented and experienced underwriters have the nancial exibility to deploy capital to make the most of the opportunities ahead. 2022 has been a year of delivery for our Retail business with many key milestones achieved. In the USA, our largest retail market, we completed the strategic repositioning of the broker channel business and substantially delivered the technology transformation programme of our digital partnerships and direct (DPD) business, setting us up for growth acceleration in 2023. In the UK we transitioned to new leadership under Jon Dye, an industry veteran with huge ambition for our business, and in Europe we passed the milestone of half a billion Euros of gross premiums written. Importantly, we have achieved our target of returning the Retail combined ratio to within the 90% to 95% range a year ahead of schedule, which is a testament to the decisive actions we have taken. The business is in great shape and it is at this juncture that after 37 years of committed service, Robert Childs, Hiscox Chairman, has announced his intention to step down. I have personally greatly valued his ability to drive clarity in our decision-making, his advice and human approach, and the support he has given me ever since I joined the business and particularly now as Group Chief Executive Ofcer. He has been instrumental in transforming Hiscox into a successful global business and I wish him all the best in his well-earned retirement. Rates 2022 performance benetted from a favourable rate environment across all Hiscox businesses, with rates in reinsurance now exhibiting all the signs of a hard market. This is underpinning continued rate strengthening in primary insurance, mainly wholesale. Hiscox Re & ILS benetted from an average risk adjusted rate increase of 13% in the period, above our expectations. This is driven primarily by North American property and retrocession, with rates up 14% and 16% respectively, with Florida exhibiting particularly hard market conditions. Specialty lines also experienced double-digit increases, driven by cyber and terrorism, with rates up 42% and 26% respectively. Since 2017, this business has achieved cumulative rate increases of over 50% across the portfolio. Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chapter 1 2 Performance and purpose 25Hiscox Ltd Report and Accounts 2022 Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chief Executive’s report Chapter 1 2 Performance and purpose 26 Hiscox Ltd Report and Accounts 2022 The reinsurance marketplace is undergoing a seismic shift, with 2022 rates above the 2012 level, and we anticipate material improvement across nearly all lines for 2023. Hurricane Ian served as a catalyst, among other factors, following many years of losses across the sector, leading to signicant improvement in the rating environment. Capacity continued to reduce during 2022 both in the traditional arena and the ILS space, as a result of another year of industry losses and volatility in the investment markets. This is leading to a true hard market for catastrophe-exposed risks. We are witnessing the best market conditions in over a decade and have deployed additional capital at January renewals, achieving risk-adjusted rate increases of 45% in property and 26% in specialty. In 2022, Hiscox London Market benetted from an average rate increase of 6%, which was ahead of our expectations. Since 2017, this business has achieved cumulative rate increases of 70%. Rate growth remained positive for all classes of business except D&O, which is already very attractively priced, having achieved cumulative rate increases of over 240% since the end of 2017. Overall the rate outlook for 2023 is positive, underpinned by the macroeconomic environment and reinsurance costs, with the strongest growth expected in terrorism and property lines. While pricing in Hiscox Retail is generally less cyclical, in 2022 it benetted from an average rate increase of 7%. This was led by Hiscox Europe where on average rates were up 8%, underpinned by double-digit rate increases in cyber, commercial property and traditional professional indemnity. In Hiscox USA on average rates were up 7%, with strong rate growth in cyber and allied health. Hiscox UK saw rate increases of 5% on average, with strong rate momentum in cyber, commercial property and entertainment. Overall, the premium growth achieved by the Group through rate and indexation in 2022 kept pace with our ination assumptions. As we look forward, the rate outlook for 2023 remains strong, particularly in reinsurance. Claims 2022 was another year with elevated large losses, both natural catastrophe and man-made, so it is pleasing to see that in spite of these challenges Hiscox maintained strong protability, delivering a Group combined ratio of 90.6%. There are no material changes to previously announced net loss estimates for Hurricane Ian and the Russia/Ukraine conict. As previously communicated, the Group reserved $135million net of reinsurance including reinstatement premiums for Hurricane Ian, based on an insured market loss of $55 billion. The majority of our exposure is in big-ticket lines: $90million net in Re & ILS and $40million net in London Market. This represents a modest exposure for Hiscox London Market, as the business had pulled back from under-priced Florida business in the preceding years. Estimated net losses for the Retail portfolio are modest at $5million. The Russia/Ukraine conict tragically continues to be a live event. The human cost of this event is immense and long-lasting and our thoughts are with Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chief Executive’s report Chapter 1 2 Performance and purpose The reinsurance marketplace is undergoing a seismic shift, with 2022 rates above the 2012 level, and we anticipate material improvement across nearly all lines for 2023.” 27Hiscox Ltd Report and Accounts 2022 Professional liability Errors and omissions Private directors and ofcers’ liability Cyber Commercial small package Small technology and media Healthcare related Media and entertainment Property Marine Aviation Specialty Commercial property Onshore energy USA homeowners Flood programmes Managing general agents International property Cargo Marine hull Energy liability Offshore energy Marine liability Public directors and ofcers’ liability Large cyber General liability Reinsurance Property Global casualty Marine and energy +5% +25% -17% +9% +12% Small commercial $1,705m $1,14 5m $466m $322m $388m An actively managed business Total Group controlled premium 31 December 2022: $4,935.4m Period-on-period in constant currency Home and contents Fine art Classic car Luxury motor Asian motor Art and private client +4% $458m Kidnap and ransom Contingency Terrorism Product recall Personal accident Specialty -5% $451m Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chief Executive’s report Chapter 1 2 Performance and purpose 28 Hiscox Ltd Report and Accounts 2022 all those who are directly or indirectly impacted. Hiscox’s estimated ultimate loss from all risks in the Ukraine and Russia remains unchanged at $48million net of reinsurance 1 , with just under three quarters of it attributable to Hiscox London Market. The majority of London Market’s and all of Re & ILS’s reserves comprise incurred but not reported (IBNR) losses. Hiscox London Market exited the aviation hull insurance business in 2018 and political risk/trade credit business in 2017. While inationary pressures continue to persist across our markets, the impact on our business is relatively contained due to the short-tail nature of our book, with the average duration of our liabilities at 1.9 years. Hiscox has a conservative reserving philosophy; continuously monitoring claims ination trends and evaluating reserve adequacy to ensure we maintain protability and a robust balance sheet position. In the rst half of the year we proactively strengthened our best estimate by $55million as a precautionary net inationary load, and this remains unchanged after undertaking a similar review at the full year. Throughout the course of 2022 we continued to proactively take action to manage volatility from the back-book, in particular in longer-tail lines where we have either exited portfolios or rened our underwriting strategy. In March, our Hiscox Re & ILS business executed an LPT, buying protection for our casualty reinsurance portfolio that is in run-off. Following that, in July, Hiscox London Market undertook an LPT to reinsure circa $116 million of reserves for 1993 to 2018 year of accounts. These deals, together with the two LPTs completed in 2021, mean that 23% of 2019 and prior years’ gross reserves are reinsured up to a 1-in-200 downside risk. At a Group level we also hold margin above best estimate as an additional buffer to compensate for the uncertainty in timing and cost of claims. At the end of 2022, the margin stood at 8.9%, down from 11.0% in the rst half of the year. Through a combination of executing a number of LPTs and proactive action on addressing ination, uncertainty on prior-period losses is reducing, consequently we have moderated the margin to be more in line with our target range of 5%-10%, although remaining at the upper end of the range. Furthermore the favourable prior-period run-off is reected in reserve releases of $239million in 2022, which are from all business segments. With regards to the new business we are writing, we mitigate inationary pressures through a combination of exposure indexation and rate increases. Our current pricing and reserving assumptions incorporate expected ination which is a multiple of experience in recent times. Therefore, the increased premium we are collecting across the Group is keeping pace with ination and our view of risk assumptions. Hiscox Retail Hiscox Retail comprises our retail businesses around the world: Hiscox UK, Hiscox Europe, Hiscox USA and Direct Asia. In this segment, our specialist knowledge and ongoing investment in the brand, distribution and technology reinforce our strong market position in an increasingly digital world. Hiscox Retail 2022 $m 2021 $m Gross premiums written 2,272.1 2,290.0 Net premiums written 1,976.8 1,969.3 Underwriting prot 101.9 34.9 Investment result (98.9) 26.9 (Loss)/prot before tax (3.4) 54.9 Combined ratio (%) 94.8 98.9 Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chief Executive’s report Chapter 1 2 Performance and purpose Hiscox Retail achieved a combined ratio of 94.8%, returning to the 90%-95% combined ratio range a year ahead of the stated target, despite the complex macroeconomic environment.” 1 Including impact of reinstatement premiums. 29Hiscox Ltd Report and Accounts 2022 Hiscox Retail grew gross premiums written by 5.1% in constant currency to $2,272.1 million (2021:$2,290.0million) and added over 55,000 net new customers. Our commercial lines, which constitute over three quarters of Retail gross premiums written, grew 6.7% in constant currency, with strong momentum across the UK and Europe. We moderated our growth in Hiscox USA as we completed the US broker portfolio repositioning and substantially delivered the US DPD technology implementation. On a go-forward basis, Hiscox Retail grew 6.6% in constant currency. With these programmes complete, Hiscox Retail growth is expected to trend towards the middle of the 5%-15% range in 2023. Hiscox Retail achieved a combined ratio of 94.8%, returning to the 90%-95% combined ratio range a year ahead of the stated target, despite the complex macroeconomic environment. We expect to operate within this range 2 going forward. Our Retail business has been undergoing a multi-year technology transformation programme. The UK is developing next-generation e-trade capabilities for less complex broker intermediated business, complementing the direct-to-consumer digital platform. In 2022 we migrated the vast majority of the US DPD business onto the new technology stack, and core platform replacement is also underway in Germany and France, with Benelux to follow in 2023. Convenience for the customer is at the heart of our distribution philosophy. Whether our customers want to connect to a Hiscox employee or complete the customer journey entirely online, our combination of talented people, supported by these technology investments, creates the platform and opportunity to serve millions of customers. The technology enables greater levels of algorithmic underwriting, process automation, improved efciency and will create operating leverage over time. We will invest incrementally in brand across our Retail business in 2023. The Hiscox brand already has a strong market position, and it is the right time to bolster it further to drive growth over the long term. Hiscox UK Hiscox UK provides commercial insurance for small- and medium-sized businesses, as well as personal lines cover, including high-value household, ne art and luxury motor. Hiscox UK gross premiums written were up 2.8% on a constant currency basis, but reduced by 6.4% to $778.0million (2021: $831.1 million) in US Dollars due to the depreciation of the Sterling. The business delivered a solid performance, with commercial lines showing strong growth of 8.5% in constant currency, boosted by rate improvements and excellent retention rates. 2022 marked strong growth in the number of online sales for UK direct commercial and we expect this trend to continue. The pace of our digital capability development, including e-trading for brokers, has signicantly picked up this year and we continue to drive several strategic initiatives to improve our core digital capabilities. The impact of the UK weather has been within our expectations. Hiscox Europe Hiscox Europe provides both personal lines cover, including high-value household, ne art and classic car, and commercial insurance for small- and medium-sized businesses. Hiscox Europe is the strongest growing business segment in the Hiscox Retail portfolio. Gross premiums written were up 13.6% in constant currency to $543.7 million (2021: $532.0 million), surpassing the €500 million milestone for the rst time. All ve markets in Europe delivered double-digit growth in constant currency, demonstrating our attractive, differentiated position and underpinned by strong growth in commercial lines of 16.2%. Hiscox Germany, Europe’s largest market, grew gross premiums written by 11.3% in constant currency to cross the €150 million mark. Hiscox Germany is a market leader in cyber, and continues to innovate and develop products that meet changing customer needs. In 2022, our German business launched a modular cyber product for businesses with less than €2.5 million in revenue. The modular approach allows customers to add cover as their needs change, and delivers a more efcient claims service should the need arise. After some early success, we plan to roll-out this new product in our other European markets. The introduction of new core technology in our European businesses remains on track. This multi-year project is being implemented in phases with efciencies gained as it progresses. Germany and France are already well underway and with Benelux to follow in 2023. The implementation is less complex than in the USA, as it is a country-by-country Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chief Executive’s report Chapter 1 2 Performance and purpose 2 Under IFRS 4. 30 Hiscox Ltd Report and Accounts 2022 roll-out, and the digital business in Europe is nascent, although the potential is signicant. We look forward to seeing signicant benets upon completion of the project not only for the business, in areas such as automation and efciencies in policy administration, but also for customer experience in terms of market connectivity. Hiscox USA Hiscox USA focuses on underwriting small commercial risks distributed through brokers, partners and direct-to-consumers using both traditional and digital trading models. Our aspiration here remains to build America’s leading small business insurer. 2022 was a year of transition for Hiscox USA, as the business delivered on two major change initiatives – the broker portfolio repositioning, through which we have exited circa $160million of business since 2019, and the re-platforming of the US DPD business, which is now substantially complete. Hiscox USA’s gross premiums written grew 2.1% to $897.9million (2021:$879.2million), up from 1.2% at the half year, as the effect of the broker business repositioning was weighted towards the start of the year. While the overall growth of the US broker business was impacted by the tail of planned actions, in the second half, we have seen green shoots as our regional underwriting teams are back on the front foot, re-engaging with brokers to write protable business in our go-forward lines. Our refreshed US senior leadership team and an enhanced business development function will strengthen the momentum behind this. In the US DPD business, all direct-to-consumer customers have been on the new technology platform since June. Direct to consumer growth, as expected, was lower during the peak period of migration in the rst half of 2022, but has started to accelerate notably since the end of the third quarter as the combination of new technology, a focused marketing drive and improved conversion rates take effect. The migration of our partnership business, which represents two-thirds of US DPD, commenced in the second half of 2022, with the vast majority of partners now live on the new platform. Mirroring the direct experience, growth slowed during the peak migration period in the latter part of 2022. The partnerships business is now in the embedding phase which is expected to extend into the second half of 2023, as over 50,000 agents and producers who have access to the new portals, need time to develop familiarity with the technology and for partners to begin re-marketing the Hiscox platform. Consequently, we anticipate the production from new and existing partners to gradually ramp up through 2023, after a subdued rst quarter 2023. We therefore expect US DPD to grow towards the middle of 5% to 15% range in 2023. Once embedding of partnership business is complete, growth is expected to accelerate. Our partnerships team has already started to take actions to increase activity, at both the partner and agency level, to encourage the marketing of our platforms and to increase usage as we emerge from this period of technology migration. Following a two-year hiatus to the onboarding of new partners, in January 2023 we added 15 new partners to our digital platform and expect them to Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chief Executive’s report Chapter 1 2 Performance and purpose In the rst half of 2023 we will launch a new ESG-focused Lloyd’s sub-syndicate. It will be complementary to Hiscox London Market’s existing portfolio and will provide access to additional capacity for qualifying clients with positive ESG credentials, such as renewable power generators and energy storage providers.” 31Hiscox Ltd Report and Accounts 2022 commence production in the second and third quarter. The near- and long-term market opportunity is incredibly attractive. I expect momentum to build through the year as marketing takes effect; as new and existing partners and agents ramp up production and as technology benets such as the potential for higher conversion rates begins to have a discernible impact. Hiscox Asia DirectAsia grew gross premiums written by 12% in constant currency to $52.5million (2021: $47.7million). Momentum picked up markedly in Singapore with the top line growing 19.5% due to the opening up of international travel, boosting travel insurance sales and motor partnerships. Thailand’s premium growth was underpinned by partnership business. Hiscox London Market Hiscox London Market uses the global licences, distribution network and credit rating of Lloyd’s to insure clients throughout the world. Hiscox London Market delivered a strong result in 2022, despite another active year of large losses. Our focus on building balanced portfolios delivered strong growth in selected lines, namely public D&O, general liability, upstream energy, terrorism and cargo; and at the same time reduced our exposure to what was under-priced catastrophe-exposed business in the binder portfolio. Overall, gross premiums written declined 4.8% to $1,114.9million (2021:$1,171.4million), with 3.3 percentage points due to planned reductions in property binder portfolios and the impact of Russian sanctions, which mainly affected our upstream energy and space portfolios. In addition, ood growth was tempered as competitive dynamics changed with National Flood Insurance Programme (NFIP) reducing prices, while we maintained our risk-based pricing approach. We expect competitive dynamics to improve following Hurricane Ian and as the demand for a ood-specic product continues to grow in the US market given recent events. Net premiums written increased 3.3%, as strong rate momentum made retaining more premium attractive. Hiscox London Market delivered a $110.0million underwriting prot, up 22.8% on the prior period. The combined ratio of 84.8% showed a 4.3 percentage point improvement year-on-year, despite a $40million net loss from Hurricane Ian and $34million net loss from the Russia/Ukraine conict. This is the third consecutive year in which Hiscox London Market’s combined ratio has been below 90%, which is a testament to the underwriting focus on creating more balanced and protable portfolios. Since 2018 we have reduced our property binder exposure by just under a half, non-renewing business which did not meet our protability hurdles. The positive impact is clear to see in the robust underwriting result. I am pleased to report that the multi-year major changes in the property binder book are now substantially complete and we consider the remaining book to be rate adequate. On completion of this activity and in light of the ongoing attractive market conditions, we expect Hiscox London Market to grow gross premiums written in Hiscox London Market 2022 $m 2021 $m Gross premiums written 1,114.9 1,171.4 Net premiums written 735.1 711.5 Underwriting prot 110.0 89.6 Investment result (54.4) 15.8 Prot before tax 53.0 104.8 Combined ratio (%) 84.8 89.1 Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chief Executive’s report Chapter 1 2 Performance and purpose 2023, while continuing to maintain a disciplined approach. We are also investing in our digital capabilities. Advances have been made in the digitalisation of pricing and underwriting models across general liability and terrorism. Throughout 2022 and into 2023 we have also been redesigning our FloodPlus and BindPlus systems so that they can be deployed in the Cloud, an important step which will make them scalable for future growth. At the same time, we have continued to make underwriting and pricing changes to maintain protable growth in both lines. We will continue to drive further automation across our business to enhance our ability to select and price risks more effectively. We also continue to innovate. For example, as economies across the globe are looking to transition to more sustainable energy production models, we are developing our strategy of participating in this shift. In the rst half of 2023 we will launch a new ESG-focused Lloyd’s sub-syndicate. At its early stage it will be nested within Syndicate 33 and lean on its existing stamp capacity. It will be complementary to Hiscox London Market’s existing portfolio and will provide access to additional capacity for qualifying clients with positive ESG credentials, such as renewable power generators and energy storage providers. To further enhance the scale of this ESG syndicate, we will partner with third-party capital on our specialist ESG positive portfolio to supplement Syndicate 33’s capacity. To build the portfolio we will utilise our existing underwriting talent and broker relationships to access clients while continuing to develop deep in-house expertise in the specialist sectors 32 Hiscox Ltd Report and Accounts 2022 focused on the transition to the green economy, such as electric vehicles and renewables. The outlook for 2023 is positive, as we are looking to broaden out in specialty and casualty lines through disciplined growth in attractively priced business. We will do this by working with our key broker relationships to seek and support attractive and protable growth opportunities on their merit, and driving the entrepreneurial spirit of our talented underwriters. Hiscox Re & ILS The Hiscox Re & ILS segment comprises the Group’s reinsurance businesses written in London and Bermuda and the insurance-linked security (ILS) activity written through Hiscox ILS. Hiscox Re & ILS gross premiums written increased by 28.5% to $1,037.9million (2021: $807.8 million) crossing the $1billion milestone for the rst time, as we benetted from further hardening market conditions. Much of the growth was supported by ILS inows in the rst half of the year, while broadly maintaining our net written premium position. Excluding reinstatement premiums, gross premiums written grew 34.4%. The business delivered a particularly strong performance in retrocession and North American and international property catastrophe lines, underpinned by increased demand and continued pressure on the supply of capacity in both the traditional and ILS space. ILS assets under management (AUM) was $1.9 billion as at 31 December2022 ($1.4billion at 31 December 2021). During the rst half of the year we secured net AUM inows of $511 million. This was partly offset by $79 million net outows in the second half. Despite the positive inows of AUM in 2022, there is uncertainty within the market regarding the availability of new or replacement ILS capital in the near term, as a result of multiple years of signicant loss events, latterly combined with economic volatility in the form of rapidly rising rates and decade-high ination. In part, it is this uncertainty that drove improved rates and tightening of terms and conditions during the January 2023 renewals. It is into the resulting highly attractive market that Hiscox is deploying its own organically generated capital to ll the gap in the market that has been left by a combination of third-party capital contraction and retrenchment by some reinsurers. Hiscox Re & ILS delivered a strong combined ratio of 81.6%, despite the $90million net loss from Hurricane Ian. We continued to drive underwriting discipline by further reducing our exposure in the risk excess class. We have also successfully reduced our participations on aggregate excess of loss deals and will continue this disciplined underwriting action in 2023 designed to reduce exposure to secondary perils. Investments The total investment result was a loss of $187.3 million (2021: prot of $51.2million), or a negative return of 2.6% (2021: positive return of 0.7%). Assets under management as at 31 December 2022 were $7.1 billion (2021: $7.3 billion). Concern over ination dominated the economic picture during 2022, as it remained at the highest levels in decades and proved persistent, exacerbated by disruptions to the global supply chain, lockdowns in China and the Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chief Executive’s report Chapter 1 2 Performance and purpose Hiscox Re & ILS 2022 $m 2021 $m Gross premiums written 1,0 37.9 8 07. 8 Net premiums written 26 8.1 274.2 Underwriting prot 57.6 91.1 Investment result (34.0) 8.8 Prot before tax 21.5 98.5 Combined ratio (%) 81.6 68.0 Russia/Ukraine conict. Central banks responded with sharp rises in interest rates, pushing rates to levels last seen before the 2008 nancial crisis. Despite high ination and tightening monetary policy, unemployment remained low and economic growth was resilient across many regions. However, having seen interest rates rise sharply in developed markets, the focus shifted from ination to the impact of higher interest rates on the economy. Growth expectations were revised down across the globe, and expectations of recession rose in key economies. The upward move in risk-free rates, along with a weakening growth outlook, led to a repricing across a wide range of markets. Diversication was of limited help to portfolios given the broad spread of losses affecting most asset classes. Bond markets sold off as risk-free rates rose, leading to some of the weakest bond returns in decades. Credit spreads widened leading to losses on corporate bonds. Global equity indices ended the year down almost 20%, albeit a rally into year-end moderated the losses. Against this backdrop, the investment loss of $187.3 million was not unexpected. However, with 93% of our xed income portfolio in investment grade bonds, most of the losses were mark-to-market. Our risk asset portfolios fell, though some exposures made absolute gains helping to alleviate the losses at the margin. The reinvestment yield on the bond portfolio rose again in the nal quarter to reach 5.1% as at 31 December 2022, up from 4.8% at the end of September2022. The change during 2022 from the starting yield of just 1.0% is transformational for forward-looking returns. The short-dated nature of our portfolio means reinvestments 33Hiscox Ltd Report and Accounts 2022 Reinsurance 23% Large property 8% Casualty 8% Specialty – terrorism, product recall 5% Marine and energy 7% Small commercial 27% Tech and media casualty 7% Art and private client 9% Specialty – kidnap and ransom, contingency, personal accident 4% Small property 2% Big-ticket business Larger premium, globally traded, catastrophe-exposed business written mainly through Hiscox London Market and Hiscox Re & ILS. Retail business Smaller premium, locally traded, relatively less volatile business written mainly through Hiscox Retail. Strategic focus Total Group controlled premium for 2022 100% = $4,935.4 million Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chief Executive’s report Chapter 1 2 Performance and purpose 34 Hiscox Ltd Report and Accounts 2022 Portfolio – asset mix Investment portfolio $7.1 billion as at 31 December 2022 Asset allocation (%) Debt and xed income holdings 76.3 Cash and cash equivalents 18.9 Equity and investment funds 4.8 Debt and xed income holdings credit quality (%) Gvt 19.6 AAA 9.3 AA 8.9 A 29.0 BBB 26.6 BB and below 6.6 Debt and xed income holdings currency split (%) USD 72.5 GB P 15.1 EUR 8.8 CAD and other 3.6 Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chief Executive’s report Chapter 1 2 Performance and purpose 35Hiscox Ltd Report and Accounts 2022 are quickly raising the cash coupon component of returns. The portfolio has much improved prospects for investment returns in 2023 and beyond. We have maintained a relatively defensive portfolio coming in to 2023. Duration remains short and credit quality remains high. Risk asset exposures are modest, with no direct exposure to UK commercial real estate, giving us room to add risk should opportunities arise. Otherwise we continue to look to incrementally improve long-term risk and capital-adjusted outcomes through further diversication. Dividend, capital and liquidity management In the continuing uncertain macroeconomic and geopolitical environment, Hiscox remains strongly capitalised against both regulatory and rating agency requirements. The Hiscox Group Bermuda Solvency Capital Requirement (BSCR) ratio is estimated at 197%, as at 31December2022. The slight reduction to prior year follows an increase in capital allocation to Hiscox Re & ILS at January2023 renewals as we deployed capital in a highly attractive market, in line with expectations. We remain comfortably above the S&P ‘A’ rating threshold and signicantly above the regulatory capital ratio requirement. As the year progresses, we will continue to assess the opportunity and may deploy further capital if the market conditions persist. As we write the vast majority of our reinsurance business in the rst half, there is an element of seasonality in the half-year solvency position which is smoothed out at the year-end due to continued capital generation, Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chief Executive’s report Chapter 1 2 Performance and purpose 3 Fixed rate of 6.00 per cent paid annually in arrears. 4 Fixed rate of 2.00 per cent paid annually in arrears. currently underpinned by improved underwriting conditions and investment result outlook. The Group’s available liquid resources are sufcient to execute against the business plan and act as a buffer to cover opportunities or market events, with fungible liquidity of around $1billion. During September 2022, the Group issued £250 million of ve-year unsubordinated unsecured notes 3 . The transaction was in excess of three times oversubscribed, demonstrating strong sentiment and market condence in the Group. The issuance of the notes was timed to coincide with the redemption of £275million unsubordinated debt 4 during December2022. The funds raised mean that the Group continues to have strong liquidity and appropriate leverage of 20.6%. The Board believes that paying a dividend is one important indicator of the nancial health of the Group. Having carefully considered the capital requirements of the business, the Board has recommended to shareholders for approval the payment of the nal dividend at 24.0 cents per share. This brings our total dividend for the year to 36.0 cents per share. The record date for the dividend will be 5May2023 and the payment date will be 13June2023. The Board proposes to offer a Scrip alternative, subject to the terms and conditions of Hiscox’s 2022 Scrip Dividend Scheme. The last date for receipt of Scrip elections will be 22May2023 and the reference price will be announced on 31May 2023. Further details on the The Board believes that paying a dividend is one important indicator of the nancial health of the Group. Having carefully considered the capital requirements of the business, the Board has recommended to shareholders for approval the payment of the nal dividend at 24.0 cents per share.” 36 Hiscox Ltd Report and Accounts 2022 dividend election process and Scrip alternative can be found on the investor relations section of our corporate website, www.hiscoxgroup.com. People During the year I took important steps to refresh our leadership team – the Group Executive Committee (GEC) – and the full team is now in place. Jon Dye, our new UK Chief Executive Ofcer, and Nicola Grant, our new Group Chief Human Resources Ofcer, joined the GEC in September; as well as Stéphane Flaquet who was appointed to the newly created role of Group Chief Operations and Technology Ofcer. Paul Cooper also joined the Executive team earlier in the year as our new Group Chief Financial Ofcer. The GEC contains a wealth of experience and knowledge combined with energy and passion and I look forward to working with them to deliver on the many opportunities that lie ahead of us. At the forefront of my mind is always that people are our greatest asset. The future success of Hiscox depends on our ability to attract, nurture and retain high-calibre talent. A key focus this year has therefore been to enhance our employee value proposition to not only encourage these behaviours but exceed our employees’ expectations. I am proud of the benets that are available at Hiscox such as HSX:26, under which every permanent employee owns a part of the Group through the share grant we launched earlier in the year, and our sabbatical programme which entitles staff with ve years of continuous service to an additional four weeks of paid leave. We also refreshed our global diversity, equity and inclusion (DEI) strategy and vision across the Group and put in place a new Group DEI policy to better reect our intent and approach. In addition, in recognition of the difcult economic circumstances currently facing our workforce we also paid out a cost of living lump sum to our UK, European and Bermudian employees most impacted by the rising costs of energy, food and fuel. The rened strategy, improving nancial performance and distinctive benets are having a positive effect; this is captured in our 2022 employee engagement scores which are our highest in ten years. Our people believe in the strategy and in our outstanding future. Clearly an engaged employee base bodes well for the drive and energy needed to seize the opportunities ahead and grow our business. Finally, I want to highlight the completion of our long-anticipated London ofce move. On 31 October our London-based team moved into new ofce space at 22Bishopsgate. This is the location where we have the largest concentration of people and is a meaningful milestone for Hiscox. The carefully thought out space has been designed as a place for us to carry out our business in a modern and collaborative environment, enabling new ways of working with each other and with our business partners. Environmental, social and governance (ESG) During 2022, we focused on further embedding our ESG structures, processes and policies and I was particularly proud to see our efforts to date recognised in an MSCI ESG rating upgrade from A to AA. We started the year with the publication of our new greenhouse gas (GHG) targets for the Group and since then, we have Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chief Executive’s report Chapter 1 2 Performance and purpose made solid progress towards embedding them in the business. We have started to develop a low-carbon transition plan for the Group to set out in more detail the journey towards meeting our ambitious targets, and intend to publish more information on this in line with UK regulatory requirements. We are also making good progress towards the rst of our interim targets for transitioning our investment portfolio, with approximately 20% of our corporate bond portfolio having net-zero/Paris Agreement-aligned targets as at year-end. We are continuing to consider the right approach for Hiscox when it comes to sustainable underwriting and investing, taking into account both our ESG exclusions policy and our responsible investment policy. In big-ticket underwriting, we monitor all risks according to their ESG prole and continue to decline and non-renew risks in line with our exclusions policy. Through this same tracking process we are able to monitor the positive risks we are supporting such as wind and solar energy, and electric vehicles. In reinsurance, we have exited from all business where 30% or more of subject premium is derived from restricted areas, and we continue to monitor our portfolio composition against our ESG focus areas, capturing programmes declined for ESG reasons in regular internal reporting. We have also made strong progress on the investment side where ESG is fully embedded in our investment processes: net-zero wording is now in all segregated investment manager mandates; we have enhanced the ESG credentials of our emerging market bond portfolio; and an investments-focused ESG dashboard is now a regular feature of Investment 37Hiscox Ltd Report and Accounts 2022 Committee reporting. Our sustainable assets including green/ESG bonds are now over $300 million, with over 5% of bond portfolios in green and ESG-labelled bonds. I am especially excited about the potential for our ESG-focused Lloyd’s sub-syndicate. 2023 outlook I am very optimistic about the outlook for 2023. Our Retail business is primed to accelerate growth towards the middle of 5%-15% range in 2023. We have completed the necessary underwriting actions in the US broker business and substantially completed the technology transition in US DPD; the UK is reinvigorated under new leadership and ambition, and Europe continues to go from strength to strength. Marketing spend has increased in all Retail markets to support our growth efforts. The reinsurance market conditions are the best we have seen in over a decade. Hiscox is a net beneciary of reinsurance rate hardening. The scale and breadth of our business, as well as the long-standing relationships developed with our reinsurance panel, have been an essential part of ensuring we secured the required retrocession protection to support our 2023 business plan. Hiscox Re & ILS has the expertise, strong balance sheet and nancial exibility to capitalise on the current trading conditions. As a result of deploying our organic capital at 1January2023 renewals, our net premiums written in January 2023 were up 49% year-on-year. In 2023, net premium written growth is expected to exceed gross premium written growth. Our London Market business is building a solid and dependable track record of protability, and with the property portfolio changes now mostly complete, I expect to see the business grow as we continue to deploy underwriting aggregate with discipline in the improving market conditions. In addition, with the work underway to create leading capabilities in digital trading and underwriting the energy transition, there is excitement in the business about the coming years and the opportunity to play a key role in the London Market. We expect the investment result, which has been a headwind over the last 12months, to become a tailwind in 2023, as bond reinvestment yields reached 5.2% at the end of February. Last but not least, change in how we present our numbers to the market is coming in the form of IFRS 17; however, this is purely a change in accounting standard, which has no impact on our business fundamentals. The strategy and the economics of the business are unchanged. Finally, I would like to thank our employees, business partners and shareholders for their continued support. Aki Hussain Group Chief Executive Ofcer 8 March 2023 Our people believe in the strategy and in our outstanding future. Clearly an engaged employee base bodes well for the drive and energy needed to seize the opportunities ahead and grow our business.” Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chief Executive’s report Chapter 1 2 Performance and purpose 38 Hiscox Ltd Report and Accounts 2022 Q& A: with Paul Cooper Group Chief Financial Ofcer Opportunity knocks Hiscox is nancially sound and poised for signicant growth across its many business units. The challenge for the nance function is to help realise that rich potential. > 39Hiscox Ltd Report and Accounts 2022 40 Hiscox Ltd Report and Accounts 2022 Q: You’re what’s known in the business as a ‘boomerang’ – you left Hiscox in 2011 before returning a decade later. What were your impressions of the Hiscox culture the rst time around, and has it changed much in the interim? A: The rst time around, the business seemed very entrepreneurial, very ambitious, always trying new things. It had a really strong vision for growing the business, not only in the Lloyd’s space, but also across retail and internationally. The people here were a pleasure to work with, and they all wanted to do the best for the Company. There was a real sense that people wanted to get on, that they liked coming to work. I think what’s very pleasing on my return is that those aspects still prevail. If anything, they’ve been reinvigorated under Aki’s leadership. He’s got loads of energy, and I think he’s employed people who have the same vigour. We’re all here to deliver on the potential that Hiscox undoubtedly has. Q: How would you characterise the condition of the Group’s nances? A: The business itself is really well placed. It’s a diverse business with a number of different business units and what’s pleasing is that they all have very strong potential, they’re all very well set in terms of performance and capability. And that’s against the background of a strong rating environment. Pricing is going in the right direction, and has been for four or ve years, and that looks set to continue. So, the commercial aspect is strong, the culture is strong, and the balance sheet is really strong too. Liquidity is good. With all that in place, my focus can be on how I help the business grow and drive more value, rather than – if I were joining a company undergoing turnaround – shoring up the balance sheet and xing things. Q: Where do you see opportunities for growth? A: Everywhere – absolutely everywhere. As I said, all of the business functions are ring on all cylinders. If you take the Re & ILS business, for example, they’re going through one of the most attractive rate environments they’ve seen in decades. From their perspective, the opportunity for growth is very signicant. There’s just a question of risk appetite – while those rates are very attractive, you don’t want to bet the house on going after them and end up with an unbalanced portfolio. Rates are also continuing to harden in the London Market, so we see real opportunities for growth in that area too. Then there’s our Retail business. Europe is fantastically positioned – it’s been growing in all of its six markets. The UK has been re-energised under the leadership of Jon Dye, who knows the market well and has the pedigree to deliver a really protable business. And then the US business has an amazing opportunity in a signicant market that is currently fragmented, under-served and ripe for disruption from a digital perspective. I think we’ll see big gains there over the coming years. Q: Is much change currently required within the nance function? A: Finance is a function that demands constant change – it’s always going to be either a recipient of change because the business itself is evolving, or it needs to be proactively improving itself to help drive developments elsewhere. As a general philosophy, I’m always looking at what we need to change in order to be better. Right now, more specically, there are some major changes required for the implementation of a new accounting standard called IFRS 17, which is placing an enormous demand on all nance professionals in the insurance industry. There’s a signicant level of attention on it, and its scale and complexity are not to be underestimated. Q: In layman’s terms, what is IFRS 17? A: There are a number of elements, but essentially it changes the way that you measure some aspects of the prot-and-loss account and the balance sheet. The biggest part of that is that you now discount your claims liabilities. There’s also a lot more presentation and disclosure required. From now on, we will have to report on a much more granular level. The biggest challenge in the short term is that this has placed signicant demand on us to make changes to systems and data, which in turn adds to the demands being placed on the nance function. IFRS 17 is a big deal, layered with complexity. It will take time to bed in, but it does mean that, in future, transparency levels will be greater, so our performance will be easier to understand and easier to compare with other businesses. Paul Cooper joined Hiscox as Group Chief Financial Ofcer in May 2022, after working in Chief Financial Ofcer roles at M&G Plc, Arrow Global and Canopius. Paul had previously served as Finance Director for Hiscox UK and Europe from 2006 to 2011 during a key phase in the Company’s growth. Q& A: with Paul Cooper Group Chief Financial Ofcer 41Hiscox Ltd Report and Accounts 2022 Q: Aside from that, what have your other major priorities been in your rst year in the role? A: One accomplishment has been to engage more with capital markets and develop a closer relationship with equity analysts. We also essentially renanced our debt in September, and that’s no small exercise. In the grand scheme of things, though, I would say that the big priority is to do things faster: report in a faster time, improve our forecasting capability, improve our management information so that we can better understand performance. We’ve had quite a sizeable investment in systems and processes in recent years, so the question now is, how do you maximise those? We have more and more data available, and I think there’s a competitive edge to be gained by optimising its use and understanding its dynamics. We’ve made a good start in that space, and it’s already showing. There are aspects of performance that we can measure now that we simply wouldn’t have been aware of six months ago. Q: You’ve come back into the role at an interesting time from a political and macroeconomic perspective. What has that meant for the business? A: Clearly, the most notable thing has been the Russia/Ukraine conict. From a reserving perspective, that’s all been well covered off, and we’ve managed our exposures very well. But on the asset side of things, it has stoked ination, and that’s had an impact on central banks, which have responded by driving up interest rates. As a consequence, we’ve had unrealised losses on bonds in our investment portfolio, which has obscured the strong underlying insurance performance of the business. In time, we’re condent that those losses will be reversed. It’s clear that markets understand and appreciate that this situation is not permanent, so our share price has not really been impacted. Q: What will your approach be to developing people within the nance function? A: That’s a really interesting question. Traditionally, and I don’t ascribe this only to Hiscox, nance people tend to become technical experts in a particular area – they become the best reserving actuary, or the best capital actuary, or the best nancial planning and analysis (FP&A) person. The problem is that at a certain level of seniority, you really need to have a broader, more diverse experience. By necessity, if you want to be a chief nancial ofcer, you’ve got to know how things work across nancial reporting, actuarial, FP&A, capital, reserving, and so on. A management position requires not only a depth, but also breadth of understanding. At the very least, you need to know how to get the right people in to give you the right insights and help you get to the right judgements, and that does require experience. I’d like to see more emphasis placed on people moving around within nance, so that they get that greater breadth of understanding. Q: Outside of work, what gives you energy? A: Loads. I love to run with the dog. I socialise with good friends and family. And I watch Arsenal play football – although that creates a different stress! I’m a season-ticket holder. They’ve been very good recently, but that brings an angst of its own – worrying about when they’re going to fall from grace, rather than why they’re doing so badly. It’s almost worse! We’ve had quite a sizeable investment in systems and processes in recent years, so the question now is, how do you maximise those? We have more and more data available, and I think there’s a competitive edge to be gained by optimising its use and understanding its dynamics.” The business itself is really well placed. It’s a diverse business with a number of different business units and what’s pleasing is that they all have very strong potential, they’re all very well set in terms of performance and capability. And that’s against the background of a strong rating environment.” 42 Hiscox Ltd Report and Accounts 2022 Capital Our capital resilience is the result of our long-held active capital management approach and, in light of current and upcoming market conditions, positions us well for funding future growth.” Gareth Jones Interim Group Head of Capital Management The Board monitors the Group’s capital strength, ensuring Hiscox remains suitably capitalised for regulatory and rating purposes, and to fund future growth opportunities. Monitoring of the Group’s capital requirements is based on both external risk measures, set by regulators and rating agencies, and our own internal guidelines for risk appetite. The Group measures its capital requirements against its available capital, which is dened by the Group as the total of net tangible asset value and subordinated debt. At31December2022, available capital was $2,427million (2021:$2,599million), comprising net tangible asset value of $2,096million (2021:$2,226million) and subordinated debt of $331million (2021:$373million). The Group can source additional funding from its borrowing facilities which comprise a revolving credit and Letter of Credit facility, as well as a Tier 1 Funds at Lloyd’s facility. Standby funding from these sources comprised $931million (2021:$941million), of which $331million was utilised as at 31December2022 (2021:$331million). Our key rating agencies, A.M. Best, S&P and Fitch, calculate capital adequacy by measuring available capital after making various balance sheet adjustments. Available capital is compared with required capital, which incorporates charges for catastrophe, premium, reserve, investment and credit risk. Our interpretation of the results of each of these models indicates that we are comfortably able to maintain our current A ratings. In December 2021, S&P published details of signicant proposed changes to the model used to assess capital adequacy within the insurance sector, for public consultation. However, further rounds of industry consultation with S&P have since been required, and S&P is now expected to publish the conclusions of their additional consultation in the rst quarter of 2023, with the intention of introducing the new framework for adoption later in the year should no further rounds of consultation be required. While some uncertainty remains as to the nal details of the new S&P model, based on the information which S&P has provided to the industry so far, we expect the Group’s rating to remain unchanged. We monitor our capital positions from our rating agencies very closely and factor them into our capital management plans; being an A-rated business is important to us and our intention is to maintain our current strong ratings. The Group manages the underwriting portfolio so that, in a 1-in-200 aggregate bad year across all major risk types, it will still be able to meet its regulatory capital commitments. A market loss of this magnitude would be expected to bring about increases in the pricing of risk, so the Group’s capital strength and nancial exibility following this scenario means we would be well positioned to take advantage of any opportunities that might arise as a result. The Group is regulated by the Bermuda Monetary Authority (BMA) under the Bermuda Group Supervisory Framework. The BMA requires Hiscox to monitor its Group solvency and provide a return in accordance with the Group Solvency Self Assessment (GSSA) framework, including an assessment of the Group’s Bermuda Solvency Capital Requirement (BSCR). The BSCR Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chapter 1 2 Performance and purpose 0.0 0.5 1.0 1.5 2.0 2.5 3.0 A.M. Best S&P Fitch Hiscox integrated capital model (economic) Hiscox integrated capital model (regulatory) Bermuda enhanced solvency capital requirement $2.43 billion available capital Economic Regulatory $2.34 billion available capital (post-nal dividend) 43Hiscox Ltd Report and Accounts 2022 model applies charges for catastrophe, premium, reserve, credit and market risks to determine the minimum capital required to remain solvent throughout the year. The GSSA is based on the Group’s own internally-assessed capital requirements and is informed by the Group-wide Hiscox integrated capital model (HICM) that, together with the BSCR, forms part of the BMA’s annual solvency assessment. The HICM provides a consistent view of capital requirements for all segments of the business and at Group level. The Group’s estimate for the year-end 2022 BSCR solvency coverage ratio is 197% (2021: 202%). The Group continues to operate with a robust solvency position and expects to maintain an appropriate margin of solvency going forward. In addition, each of the respective insurance carriers holds appropriate capital positions on a local regulatory basis. The Hiscox businesses are rated ‘A’ by A.M. Best and S&P and A+ by Fitch. Read more in note 3 to the nancial statements. Read more about our nancial condition in our nancial condition report hiscoxgroup.com/about-hiscox/ group-policies-and-disclosures. Projected capital requirement 191 Rating agency assessments shown are internal Hiscox assessments of the agency capital requirements on the basis of projected year-end 2022. Hiscox uses the internally developed Hiscox integrated capital model to assess its own capital needs on both a trading (economic) and purely regulatory basis. All capital requirements have been normalised with respect to variations in the allowable capital in each assessment for comparison to a consistent available capital gure. The available capital gure comprises net tangible assets and subordinated debt. Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Capital Chapter 1 2 Performance and purpose 44 Hiscox Ltd Report and Accounts 2022 Risk management Our risk management strategies and processes continue to evolve with our business, and we work hard to ensure we have a strong risk culture throughout the organisation, supported by regular and robust internal training and awareness campaigns.” Hanna Kam Group Chief Risk Ofcer The Group’s core business is to take risk where it is adequately rewarded to maximise returns to shareholders. The Group’s success is dependent on how well we understand and manage our exposures to key risks. Risk strategy Our robust risk strategy positions us to capture the upside of the risks we pursue and effectively manage the downside of the risks to which we are exposed. It is based on three key principles: s we maintain underwriting discipline; s we seek balance and diversity through the underwriting cycle; s we are transparent in our approach to risk, which allows us to continually improve awareness and hone our response. Risk management framework The Group takes an enterprise-wide approach to managing risk. The risk management framework provides a controlled system for identifying, measuring, managing, monitoring and reporting risk across the Group. It supports innovative and disciplined underwriting across many different classes of insurance by guiding our appetite and tolerance for risk. Exposures are monitored and evaluated both within the business units and at Group level to assess the overall level of risk being taken and the mitigation approaches being used. We consider how different exposures and risk types interact, and whether these may result in correlations, concentrations or dependencies. The objective is to optimise risk-return decision-making while managing total exposure, and in doing so remain within the parameters set by the Board. The risk management framework is underpinned by a system of internal control, which provides a proportionate and consistent system for designing, implementing, operating and assessing how we manage our key risks. This framework is regularly reviewed and enhanced to reect evolving practice on risk management and governance. During 2022, we continued to further embed and strengthen our system of internal control. Risk appetite The risk appetite sets out the nature and degree of risk the Group is prepared to take to meet its strategic objectives and business plan. It forms the basis of our exposure management and is monitored throughout the year. Our risk appetite is set out in risk appetite statements, which outline the level of risk we are willing to assume, both by type and at an aggregate level, and dene our risk tolerances: the thresholds which would represent a ‘red alert’ for senior management and the Board. Risk appetites, which are set for the Group as a whole and for each of our insurance carriers, are reviewed annually, enabling us to respond to internal and external factors such as the growth or shrinkage of an area of the business, or changes in the underwriting cycle that may have an impact on capacity and rates. Risk management across the business The Group coordinates risk management roles and responsibilities across three lines of defence. These are set out in the model on page 45. Risk is also overseen and managed by formal and informal committees and working groups across the rst and second lines of defence. These focus on specic risks such as catastrophe, cyber, casualty, Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chapter 1 2 Performance and purpose 45Hiscox Ltd Report and Accounts 2022 Three lines of defence model sustainability, reserving, investments and credit, as well as emerging risks. The Group Risk and Capital Committee and the Group Underwriting Review Committee are sub-committees of the Risk Committee and make wider decisions on risk. More information on these Committees can be found on pages 63 to 65. The Own Risk and Solvency Assessment (ORSA) process The Group’s ORSA process involves a self-assessment of the risk mitigation and capital resources needed to achieve the strategic objectives of the Group and relevant insurance carriers on a current and forward-looking basis, while remaining solvent, given their risk proles. The annual process includes multi-disciplinary teams from across the business, such as capital, nance and business planning. The role of the Board in risk management and key developments during 2022 The Board is at the heart of risk governance and is responsible for setting the Group’s risk strategy and appetite, and for overseeing risk management (including the risk management framework). The Risk Committee of the Board advises on how best to manage the Group’s risk prole by reviewing the effectiveness of risk management activities and monitoring the Group’s risk exposures, to inform Board decisions. The Risk Committee relies on frequent updates from within the business and from independent risk experts. At each of its meetings during the year, the Risk Committee reviews and discusses a risk dashboard and a critical risk tracker which monitors the most signicant exposures to the business, including emerging risks and risks that have emerged but continue to evolve. The Risk Committee also engages in focused reviews on our key risks and monitors emerging risks throughout the year. In 2022, additional risks considered include associated risks with Cloud provider concentration, reversal of globalisation trends impacting the complexity and cost of regulatory compliance, and potential disruptions arising from infectious diseases outbreaks. An overview of the processes for identifying emerging risks through the Grey Swan Group is described on page 65. Stress tests and reverse stress tests (scenarios such as those shown on pages 46 to 47, which could potentially give rise to business failure as a result of either a lack of viability or capital depletion) are also performed and reported on to the Risk Committee. The Risk Committee also provided input into a number of important risk management developments during 2022: s a risk management maturity framework was introduced during the year to help set the organisation’s maturity goals against six key dimensions of risk management, as well as monitor ongoing progress made against these goals. The maturity model has been introduced at both Group and business unit level; s maintaining a strong risk culture across the organisation is recognised as a key component of effective risk management at Owns risk and controls Responsible for ownership and management of risks on a day-to-day basis. Consists of everyone at every level in the organisation, as all have responsibility for risk management at an operational level. Assesses, challenges and advises on risk objectively Provides independent oversight, challenge and support to the rst line of defence. Consists of the Group risk team and the compliance team. Provides independent assurance of risk control Provides independent assurance to the Board that risk control is being managed in line with approved policies, appetite, frameworks and processes, and helps verify that the system of internal control is effective. Consists of the internal audit function. Risk management framework Understanding and managing the signicant exposures we face. Hiscox Own Risk and Solvency Assessment (ORSA) framework The Group’s ORSA process is an evolution of its long-standing risk management and capital assessment processes. ORSA governance O R S A p r o c e s s Risk appetite Risk owner Risk measurement Risk monitoring Risk reporting Risk denition Risk mitigation ORSA documentation Business planning Risk assessment Capital and solvency assessment Assurance Risk governance Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Risk management Chapter 1 2 Performance and purpose 46 Hiscox Ltd Report and Accounts 2022 Hiscox. During the year, the Group risk team developed processes to more systematically assess risk culture across the Group considering aspects such as tone from the top, risk transparency, the organisation’s use of lessons learned and its ability to identify and respond to uncertainty. As part of this work, an 18-month plan has also been developed to further enhance the organisation’s risk culture which will continue to be monitored through the processes developed during the year. These processes now include a risk culture survey for all staff to be completed as part of annual risk management training which has been rolled out; s there has been a strong focus during the year on performing targeted risk reviews at both Group and legal entity level (including those driven by regulatory developments). Particular emphasis has been placed on performing reviews to assess the risks for the organisation associated with ination given the current macroeconomic conditions being observed. The Risk Committee also supports the Board in its review of the effectiveness of the Group’s risk management and internal control systems as part of its annual declaration of compliance with the Bermuda Monetary Authority’s Group Supervision Rules and via the annual Group-wide risk and control self-assessment and associated second-line review. The Board, through the Risk Committee, has conducted a robust assessment of the emerging and key risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity, and is satised that no material changes to the key risks are required. The role of the Group risk team The Group risk team is responsible for designing and overseeing the implementation and continual improvement of the risk management framework. The team is led by the Group Chief Risk Ofcer who reports to the Group Chief Executive Ofcer and the Risk Committee of the Board. The team works with the rst-line business units to understand how they manage risks and whether they need to make changes in their approach. It is also responsible for monitoring how the business goes about meeting regulatory expectations around enterprise risk management. 2022 has seen a continued focus on improving the efciency of the risk management framework, mainly through the streamlining and automation of repeatable cycles. This creates further capacity for risk reviews and deep-dives and for more support to be available Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Risk management Chapter 1 2 Performance and purpose Casualty extreme loss scenarios As our casualty businesses continue to grow, we develop extreme loss scenarios to better understand and manage the associated risks. Losses in the region of $75-$825 million could be suffered in the following extreme scenarios: Event Estimated loss Multi-year loss ratio deterioration 5% deterioration on three years’ casualty premiums $235m Economic collapse An event more extreme than witnessed since World War II $375m Casualty reserve deterioration Estimated 1:200 view of a casualty reserve deterioration on current reserves of c.$2bn $825m Pandemic Global pandemic considering broader and alternative impacts than Covid-19 $100m Cyber A 1:200 cyber event, such as a major Cloud outage or mass ransomware attack. Includes ‘silent cyber’ exposures $350m Marine scenarios Range of events covering collision and sinking of vessels and any resultant pollution up to $75m Offshore platform Total loss to a major offshore platform complex up to $100m Terrorism Aircraft strike terror attack in a major city up to $350m Property catastrophe † 1-in-200 year catastrophe event from $280bn US windstorm $500m *Losses spread over multiple years. ‘Silent cyber’ refers to losses incurred from non-cyber product lines from a cyber event. † As a point of comparison. to change programmes across the Group, as well as ensuring appropriate support and challenge is provided to the rst line of defence in assessing, understanding and responding to risks associated with the current geopolitical and economic environment. 47Hiscox Ltd Report and Accounts 2022 Read more about our key risks. More information on our approach to risk management can be found at hiscoxgroup.com/about-hiscox/ risk-management. 0 100 200 300 400 500 600 700 800 800 700 600 500 400 300 200 10 0 0 JP EQ JP WS EU WS US EQ US WS 02 04 07 02 36 JP EQ JP WS EU WS US EQ US WS 05 07 14 08 70 JP EQ JP WS EU WS US EQ US WS 12 13 22 24 127 JP EQ JP WS EU WS US EQ US WS 21 19 30 48 193 JP EQ JP WS EU WS US EQ US WS 34 28 39 86 277 Industry loss return period and peril 5–10 year 10–25 year25–50 year50–100 year 100–250 year Mean industry loss $bn Superstorm Sandy – $20bn market loss 7-year return period Hurricane Katrina – $50bn market loss 21-year return period 1987 J – $10bn market loss 15-year return period Loma Prieta Quake – $6bn market loss 15-year return period Northridge Quake – $24bn market loss 40-year return period 2011 Tohoku Quake – $25bn market loss 45-year return period Hurricane Andrew – $56bn market loss 25-year return period Property extreme loss scenarios Boxplot and whisker diagram of modelled Hiscox Ltd net loss ($m) January 2023. Stress tests and reverse stress tests are regularly performed and reported on to the Risk Committee of the Board. These include climate-related scenarios such as those shown in the chart below. Hiscox Ltd loss ($m) Upper 95%/lower 5% Modelled mean loss This chart shows a modelled range of net loss the Group might expect from any one catastrophe event. The white on the red bars depicts the modelled mean loss. The return period is the frequency at which an industry insured loss of a certain amount or greater is likely to occur. For example, an event with a return period of 20 years would be expected to occur on average ve times in 100 years. JP EQ – Japanese earthquake, JP WS – Japanese windstorm, EU WS – European windstorm, US EQ – United States earthquake, US WS – United States windstorm. 8 Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Risk management Chapter 1 2 Performance and purpose 48 Hiscox Ltd Report and Accounts 2022 Stakeholder engagement Regular investor dialogue We maintain regular dialogue with capital markets stakeholders, predominantly via our Group Chief Executive Ofcer, Group Chief Financial Ofcer and Director of Investor Relations, who meet with existing shareholders, potential investors and research analysts regularly to discuss our strategy, trading conditions, business performance and other factors affecting our operations. We run several comprehensive investor roadshows a year in the UK and USA and participate in a range of investor conferences. During 2022, the Company conducted around 370 meetings and met with around 150 investors, representing approximately 76% of our issued share capital. Financial reporting We report to the market on Company performance four times per year, providing shareholders with an overview of recent business performance and trading conditions. These are available on our corporate website and as an email alert for subscribers. Annual Report and Accounts Our Annual Report and Accounts gives shareholders a more detailed view of the business and includes some additional corporate governance disclosures beyond our statutory requirements. Annual General Meeting (AGM) Our AGM provides another regular investor touchpoint. At the 2022 AGM, all resolutions were passed with a signicant majority. Shareholders Our shareholders value our clear strategy, strong underwriting discipline and sound capital management, and we maintain ongoing engagement with them. Annual employee engagement survey Our annual employee engagement survey gives all our employees the opportunity to provide honest feedback on how they feel about Hiscox, with the results discussed at all levels including Board level and informing future plans. Board-level Employee Liaison Non Executive Director, Anne MacDonald, also serves as the Group’s Employee Liaison, working with the Group’s employee engagement network to ensure that workforce views are considered in Board decision-making. Employee networks Many of our employees are actively engaged in at least one of our 18 employee network chapters, including WeMind, Pan-African, parents and carers, and Pride. These networks are supported by our Directors, who contribute to panel debates and other employee events. Communication updates Employees have access to Company-wide ‘connected’ events, annual ‘launch’ events and ‘box’ meetings, many of which are led or attended by our Directors to share news, align on strategy and objectives and celebrate successes. Partners’ meetings Hiscox Partner is an honorary title given to employees who make signicant contributions to the development and protability of the Group. Up to 5% of the total workforce are Hiscox Partners, and have the opportunity to inuence the direction of our business through regular formal and informal Partners’ meetings, which Directors also attend. Employees We want to build teams that are as diverse as our customers and create a vibrant work environment where all employees can thrive. Annual Hiscox broker events We hold an annual preferred broker summit for our UK brokers, to share insight and expertise, and a London Market broker academy to educate and inform. These events are supported and often attended by our Executive Directors. Broker satisfaction survey Each year we measure broker satisfaction with our products and services, including through qualitative broker interviews, with the results shared and discussed at Board level and informing future plans. Attending key industry events We participate in key industry events in every part of our broker-facing business, including at Executive Director level. This includes: BIBA, a UK insurance and broker conference; the CIAB, a US marketplace meeting for commercial property and casualty brokers and insurers; and in our big-ticket businesses, Monte Carlo, Baden Baden, and RIMS. Thought leadership We produce thought leadership that enhances our broker relationships and our position as experts in our chosen areas. In 2022, this included cyber security trends and mitigation strategies, the insurance implications of self-driving cars, the importance of passion in building a small business and the latest online art buying trends. Brokers The risks we write through brokers account for around 85% of our business, so we look to build strong and lasting relationships with those that share our values. Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chapter 1 2 Performance and purpose 49Hiscox Ltd Report and Accounts 2022 Customer satisfaction We talk to thousands of customers each year, through both quantitative surveys and qualitative research – including feedback after they have bought a product or made a claim – which are reviewed by our leadership teams and help to continually improve our offering. Consumer awareness We also measure the health of our brand through regular brand tracking surveys which assess consumer brand awareness and perception. These are shared with senior management and inform marketing and sales activities. Informing our marketing and communications Marketing and communications activity across our markets is informed by the qualitative and quantitative research we carry out with both existing and potential customers. For example, a current focus in the UK is reviewing our marketing and communications in line with the FCA’s new Consumer Duty regulations, where we will also take into account customer insights and feedback. Customer-focused products and tools We use a combination of customer insight and claims experience to develop not only our risk transfer products, but also risk mitigation tools. These include our cyber exposure calculator and the Hiscox CyberClear Academy, a NCSC-approved cyber training programme for customers. Regular dialogue Our Chief Compliance Ofcer and compliance teams worldwide lead our relationships with our regulators and maintain regular dialogue with them, with involvement from senior management and the Board when required. Regulatory dialogue includes the annual supervisory college, hosted by the Bermuda Monetary Authority as our Group supervisor, which gives an important annual opportunity for us to present a consistent message to all of our regulators on issues of common interest, and in 2022 was attended by members of the Group’s senior management team, including all of the Executive Directors. Regulatory change We contribute to the regulatory change process, both directly and through active membership of trade associations, such as the Association of Bermuda Insurers and Reinsurers (ABIR) and the Association of British Insurers (ABI). Our Executive Directors are important contributors to this work. Scenario analysis and stress testing We maintain a regular cycle of stress testing and scenario analysis to ensure we manage risk well and evolve at the same pace as the risks we cover. In 2022, this included participation in the Prudential Regulation Authority’s market-wide General Insurance Stress Test (GIST) in the UK. Regulatory reporting The Group and its subsidiaries met all material regulatory reporting obligations for 2022. Customers We have over 1.5 million retail customers worldwide and providing each of them with products they can rely on is what we are here for. Regulators We are a global business with a responsibility to engage with regulators in all jurisdictions where we operate. The Group is regulated in Bermuda and has regulated subsidiaries worldwide. Robust procurement processes We want to work with businesses that align with our values and support our goals, and we reect this in our robust procurement processes. These processes ensure we assess suppliers against a wide range of criteria, encompassing nancial stability, culture and ethics, as well as innovation and development. For larger contracts, these processes also include a degree of Executive Director involvement or oversight. Supplier code of conduct We expect our suppliers to adhere to high standards in areas such as risk management and compliance, in line with our regulatory requirements, and when it comes to environmental, social and governance issues, such as diversity, equity and inclusion (DEI) and environmental practices. Active dialogue We maintain active dialogue with our suppliers to ensure our expectations, ambitions and ways of working remain aligned. This dialogue is often driven by the relationship managers for each contract and supported or facilitated by our Group procurement experts, and for larger contracts will include senior management or Executive Director involvement. Suppliers Our suppliers are an important extension of our in-house expertise, which is why we aim to work with like-minded businesses that share our purpose. Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Stakeholder engagement Chapter 1 2 Performance and purpose 50 Hiscox Ltd Report and Accounts 2022 Q& A: with Stéphane Flaquet Group Chief Operations and Technology Ofcer Tech savvy The future of technology at Hiscox will see a growing focus on business outcomes, a convergence of approaches between retail and big-ticket and a change of mindset around the management of data. > 51Hiscox Ltd Report and Accounts 2022 Q: How has the role and prole of technology at Hiscox changed in recent years? A: It’s been a massive change. Key to this is that the technology function has emerged as a core function across all business areas. Technology can be a source of competitive advantage, but for that to happen you need to have close proximity between the technology team and the rest of the business. If you’ve got the IT leader in the room for most of the conversation, they’ll be able to do a better job of enabling the business. We now have technology leaders sitting within all our business unit leadership teams, which is a big change. You can see it in the way our business unit CEOs now talk about IT in their communications, in their operating plans. It’s no longer acceptable for a leader to say: “I don’t understand tech”. A decent understanding of technology is as important as people leadership, business economics, nancial management, and so on. Our leaders are willing to learn because they realise the potential of technology to transform their business in so many ways. Q: How do you ensure you’re delivering effective technology change? A: In IT, delivery times can be quite long, so you need to plan ahead. But as we know, the pace of innovation in tech is increasing and the pace of adoption is increasing even faster, so you also need to be able to iterate super quickly. Getting the balance between the two is really tricky. If you’re too short term, you’re always on the back foot, trying to respond to business demands. If you’re too long term, by the time you deliver something, you’re delivering what the business needed three years ago. We need to be having different conversations and using different delivery mechanisms. There is business transformation that requires multi-year planning, but there is other change delivery that can be done in two-week iterations. And this is not a tech conversation, this is an overall business agility ambition. What those two levels of delivery have in common is the need to always have in mind what the business outcome is that you want to get to. In IT, it’s so easy to get caught in the buzz. But the role of IT leaders is not just nding the next cool piece of kit and spending a lot of Hiscox’s money on it. It’s about using tech in a way that makes our business better – that is the really cool thing. That’s where the proximity between the technology team and the rest of the organisation is so key. IT is a means to an end. It’s not a goal in itself. So focusing on tangible business outcomes is critical. That has been front of mind as we successfully re-platformed our retail businesses in the UK, the USA and now Europe. Q: Is there a difference in your approach between retail and big-ticket business? A: Historically, technology was more important in retail than in big-ticket – high-volume, low-margin business is where tech traditionally had a key role to play. But what we’ve seen over the past few years is a convergence in the use of technology between retail and big-ticket. For example, one of the great successes is how the London Market is now distributing some of its products directly to the local producers using the kind of application programming interface (API) and pricing capability you would expect in retail. Historically, in big-ticket it’s all about technical excellence, pricing, analytics, modelling, and you now see a lot more of that going into the retail space. I think we’re seeing a real meeting in the middle where these previously very different business types are using the same core capabilities. Having a strong enterprise architecture function that is able to connect the dots, drive re-use and economies of scale is even more critical in that context of convergence. Q: What is your vision for how the use of data should change in the coming years? A: Insurance has always been about After building a career in operations and change leadership, Stéphane Flaquet joined Hiscox in 2010 as Chief Operating Ofcer for Europe, before moving to London in 2012 to head up the Group technology function. After time as Managing Director for Hiscox Europe, Chief Transformation Ofcer for the Group and Interim CEO of Hiscox UK, he took on the newly created role of Group Chief Operations and Technology Ofcer during 2022. Q& A: with Stéphane Flaquet Group Chief Operations and Technology Ofcer 52 Hiscox Ltd Report and Accounts 2022 data and will always be about data, but technology transformation can dramatically impact the way we use it and the value we get from it. We currently have lots of pockets of good practice all across the organisation, so now we’re focusing on connecting the dots between them. So rather than looking at underwriting data, or claims data, or marketing data, or brand awareness data, we want a 360° view of all those different components. That is only going to be achieved if we start treating data as a product, rather than as a by-product of any particular activity. We need people to own that product, take responsibility for its integrity and accuracy and then make it available to other data owners. That’s a completely different mindset and is one of the capabilities that we are building. Q: How do you see technology in the workplace evolving? A: It’s obvious to say, but our relationship to technology, both personal and professional, has fundamentally changed in the last few years. I think one of the few good things about the pandemic is how the adoption of technology has accelerated. During 2022 we moved into our new ofce here in London, and now I enter the building using my phone, book a desk using an app, order lunch using an app. We don’t have phones on our desk, I hardly have papers anymore, I just carry my laptop and my iPhone and this is my life and I can do everything that I want with this. But I still think there is more we can do. We need to recreate the same simplicity and convenience for our people that we all have in our personal life, and we need to offer our customers the same seamless experience. This is a never-ending journey because our expectations as customers are constantly rising, and rightfully so. Q: Beyond your technology brief, what are your other priorities? A: One major priority is to strengthen our operational capabilities in retail. Retail is the fastest growing part of our organisation, and to support that growth we’re focused on making sure we have all the right capabilities in place, dialled up to the appropriate level: from the voice of the customer, to management information, strategy leadership, automation, process management, technology enablement, all of that. We also currently have very distinct retail businesses, and they’re all operating slightly differently, so an element of operating model convergence is needed and I think technology can play a really exciting role in that. Q: Outside of work, what gives you energy? A: Now that my kids have mostly left the nest, the best thing that happened to me over the last three years is that I got a dog for the rst time, a chocolate Labrador called Mosey. He has changed my life completely. I can’t believe that I’ve lived for almost 47 years of my life without a dog. What a waste! What we’ve seen over the past few years is a convergence in the use of technology between retail and big-ticket. For example, one of the great successes is how the London Market is now distributing some of its products directly to the local producers using the kind of API and pricing capability you would expect in retail.” IT is a means to an end. It’s not a goal in itself, so focusing on tangible business outcome is critical. That has been front of mind as we successfully re-platformed our retail businesses in the UK, the USA and now Europe.” 53Hiscox Ltd Report and Accounts 2022 54 Hiscox Ltd Report and Accounts 2022 Environmental, social and governance (ESG) The challenges of ESG are not easy to solve, which is why I like the pragmatic approach that Hiscox is taking to address them. That means operating responsibly, but also working with others to drive meaningful progress.” Jon Dye Chief Executive Ofcer, Hiscox UK and Sustainability Steering Committee member Our approach to environmental, social and governance standards (ESG) is shaped by a clearly stated ambition: to be here for the long term, for our customers, colleagues and communities, operating in a sustainable way for the future. We take our role in the world seriously and want to play a responsible part in society, but we are pragmatic about what that looks like. The language of ESG is rapidly evolving, but the issues it encompasses are not new, and in many cases our responses to them are already embedded in our business. For example, having a deep understanding of climate change through catastrophe modelling and research is a fundamental part of our business and an area where we want to be market leading. In other areas, progress comes through regulation or public interest, but we also see future opportunities to innovate and serve our customers. To achieve our ambition, we focus on making positive and persistent improvements to our approach across ESG. For example, during 2022, we established an ESG data provider within our London Market business, which over time will support underwriting decisions in big-ticket lines and help us factor ESG into our future exposures. We also saw a 28% decrease in our operational greenhouse gas (GHG) emissions in 2022 against our 2020 baseline year, and realised the fth year of incremental improvement in closing our UK gender pay gap, which is now at 16.0% on a mean basis. Our progress over the past year was reected in our MSCI ESG rating, which was upgraded from A to AA, and in our CDP score, which improved from a B- in 2021 to a B in 2022. We will continue to build on this progress during 2023, through a combination of one-off programmes of work and ongoing engagement on key issues. This will include: s publishing a low-carbon transition plan in line with UK regulatory requirements; s further dening the Group’s ESG risks and opportunities through ESG materiality mapping; s continued industry collaboration on issues including the measuring of underwritten emissions. Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chapter 1 2 Performance and purpose A c t i v e r i s k m a n a g e m e n t a n d m i t i g a t i o n C l e a r r e p o r t i n g a n d d i s c l o s u r e s R o b u s t i n t e r n a l c o n t r o l s , p o l i c i e s a n d p r o c e d u r e s A p p r o p r i a t e s t r u c t u r e a n d o v e r s i g h t i n c l u s i v e w o r k f o r c e B e i n g a n e n g a g e d a n d c u s t o m e r s c a n r e l y o n B e i n g a n i n s u r e r o u r i n t h e c o m m u n i t y P l a y i n g o u r p a r t C r e a t i n g p r o d u c t s a n d s e r v i c e s t h a t i m p r o v e r e s i l i e n c e I n v e s t i n g i n u n d e r w r i t i n g a n d r i s k m a n a g e m e n t W o r k i n g w i t h o u r s u p p l i e r s a n d p a r t n e r s M a n a g i n g o u r o w n e n v i r o n m e n t a l f o o t p r i n t C o m p l i a n c e w i t h B e r m u d a C o m p a n i e s A c t , U K l i s t i n g r u l e s , a n d l o c a l c o u n t r y l a w s U n d e r s t a n d i n g c l i m a t e r i s k a n d h e l p i n g o u r c u s t o m e r s t o a d a p t G l o b a l t h e m e s , l o c a l l y e x e c u t e d t o m a k e a n i m p a c t S o c i a l G o v e r n a n c e E n v i r o n m e n t a l C o r e t h e m e s G u i d i n g p r i n c i p l e s 55Hiscox Ltd Report and Accounts 2022 Hiscox ESG framework ESG issues touch many different parts of our business and the Hiscox ESG framework helps us stay focused and make an impact. It ensures we are pragmatic and consistent, teaming Group-wide themes with local market relevance. We also evolve as regulation changes and public interest in emerging issues grows. Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Environmental, social and governance (ESG) Chapter 1 2 Performance and purpose 56 Hiscox Ltd Report and Accounts 2022 Environmental We carefully manage our environmental impact and work with our customers, suppliers and business partners to respond to the changing climate. This includes nding ways to limit our own consumption of materials such as energy and water and reducing the amount of waste we generate. It also means investing in areas such as research, catastrophe modelling and new technologies that improve our underwriting capabilities and ensure we are well placed to help our customers when it comes to managing the risks they face. ESG exclusions policy Our ESG exclusions policy ofcially came into force at the start of 2022 and is an important pillar of our environmental ambitions. This policy sets out our ambition to reduce steadily and eliminate by 2030 our insurance, reinsurance and investment exposure to coal-red power plants and coal mines; Arctic energy exploration, beginning in the ANWR region; oil sands; and controversial weapons such as landmines. Since then we’ve made solid progress across underwriting, reinsurance and investments: s in big-ticket underwriting, we now monitor all risks according to their ESG prole and continue to decline and non-renew risks in line with our exclusions policy. Through this same tracking, we are able to monitor the positive risks we are supporting such as wind and solar energy, and electric vehicles; s in reinsurance, we have exited from all business where 30% or more of subject premium derived from restricted areas, and we continue to monitor our portfolio composition against our ESG focus areas, capturing programs declined for ESG reasons in regular internal reporting; s in investments, we have shared the policy with our fund managers, to ensure it is considered in relation to pooled funds, and we have eliminated our investment exposure within all directly-held bonds that fall outside of appetite. In addition, we have now fully embedded ESG into our investment processes: net-zero wording is now in all core bond investment manager mandates; we have enhanced the ESG credentials of our emerging market bond portfolio; and an investments-focused ESG dashboard is now a regular feature of Investment Committee reporting. Our sustainable assets including green/ESG bonds are now over $300 million, with over 5% of our bond portfolio in green or ESG-labelled bonds. GHG reduction targets Central to our efforts to manage our environmental impact is an ambitious set of targets for the reduction of GHG emissions. We announced our new Group-wide GHG targets with our 2021 full-year results, and during 2022 we have focused on embedding them. These targets, which were developed using SBTi methodologies and designed to align with a 1.5°C net-zero world by 2050, are: s reduce our Scope 1 and 2 emissions by 50% by 2030, against a 2020 adjusted baseline; s reduce our operational Scope 3 † emissions by 25% per full-time equivalent (FTE) by 2030, against a 2020-adjusted baseline; s transition our investment portfolios to net-zero GHG emissions by 2050. The aim is that more than 25% of our corporate bond portfolio by invested value will have net-zero or Paris-aligned targets by 2025, and more than 50% by 2030; s engage with our suppliers, brokers and reinsurers on our net-zero targets and on their plans to adopt Paris-aligned climate targets; s monitor emerging standards around underwritten emissions and collaborate across our industry on their development, aligning with best practice in this area as it emerges. In 2022, we took some important rst steps in response to these targets: s we completed a half-year footprint in order to provide a mid-point for assessing emissions and further enhance our data collection processes; s we conducted a deep-dive on renewable electricity usage across the Group, and identied key sites to focus on for continued adoption of renewable electricity in support of our Scope 1 and 2 target; s we made good progress towards the rst of our interim targets for transitioning our investment portfolio, with approximately 20% of our corporate bond portfolio having net-zero/Paris-aligned targets as at year-end. We will build on this further with the development of a low-carbon transition plan for the Group, in line with UK regulatory requirements. * Baseline year adjusted in light of Covid-19-related lockdown measures,to reect a more normal year in terms of business travel etc. † Operational Scope 3 emissions predominantly consist of purchased goods and services and capital goods, and business travel (air, rail and car travel). Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Environmental, social and governance (ESG) Chapter 1 2 Performance and purpose 57Hiscox Ltd Report and Accounts 2022 * GHG emissions are calculated according to the Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard (revised edition). Hiscox uses market-based Scope 2 emissions for reporting in line with its new GHG reduction target. Operational Scope 3 emissions cover operational suppliers (ofce and other related services), capital purchases, fuel and energy related activities, waste generated in operations, business travel, employee commuting and remote working. Non-operational emissions are those that do not directly contribute to the emissions associated with daily business activity, including non-operational purchased goods and services and transportation and distribution. An assessment across all categories of Scope 3 emissions has taken place and the material categories are disclosed as part of our full GHG inventory (above). Note some emissions totals may not tally due to rounding. The investment emissions are calculated using the Enterprise Value Including Cash (EVIC-based) method of attributing nanced emissions to investors, and calculations use MSCI’s carbon data † as the ultimate source. Our 2020 operational emissions baseline for business travel has been restated to project pre-Covid travel patterns. A copy of our Streamlined Energy and Carbon Reporting (SECR) GHG emissions table can be found on page 63. † Although Hiscox’s information providers, including without limitation, MSCI ESG Research LLC and its afliates (the ‘ESG Parties’), obtain information (the ‘information’) from sources they consider reliable, none of the ESG Parties warrants or guarantees the originality, accuracy and/or completeness, of any data herein and expressly disclaim all express or implied warranties, including those of merchantability and tness for a particular purpose. The information may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used as a basis for, or a component of, any nancial instruments or products or indices. Further, none of the information can in and of itself be used to determine which securities to buy or sell or when to buy or sell them. None of the ESG parties shall have any liability for any errors or omissions in connection with any data herein, or any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost prots) even if notied of the possibility of such damages. Environmentally-focused commitments Paris Agreement 2015 Principles for Sustainable Insurance (PSI) Principles for Responsible Investment (PRI) Sustainable Markets Initiative Task Force on Climate-related Financial Disclosures (TCFD) ClimateWise Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Environmental, social and governance (ESG) Chapter 1 2 Performance and purpose Total GHG emissions inventory We continue to focus on managing and minimising our carbon footprint as a Group. While we saw a 28% decrease in our operational GHG emissions in 2022 against our 2020 baseline year, our total operational footprint increased by 13% in 2022 when compared to 2021. While some of this increase relates to emissions arising from one-off capital goods spend – such as those generated as a result of our London ofce move – there are other areas where we have seen an increase in emissions due to continued improvements in data accuracy as we continue to enhance our data collection processes. We also saw an increase in upstream transport and distribution emissions, as we have this year started to account for transport emissions related to purchased goods and services and capital goods as part of our Scope 3 footprint. Business travel emissions this year also reect the expected rebound in travel-related emissions that we reported last year, as work patterns continue to normalise. GHG emissions Scope 2022 (tCO 2 e) 2021 (tCO 2 e) 2020 (tCO 2 e) 2022 vs. 2020 baseline Scope 1 786 678 615 28% Scope 2 (market-based) 927 866 1,111 -17% Total Scope 1 and 2 1,713 1,544 1,726 -0.8% Scope 3 (operational) 19,298 17,116 27,4 61 -30% Scope 3 (operational) per FTE 5.83 5.80 8.91 -35% Total operational footprint 21,011 18,660 29,187 -28% Scope 3 (non-operational) 9,862 8,458 7,0 4 6 40% Investments 127,4 97 125,15 6 135,275 -6% Our Scope 1-3 emissions excluding investments are independently veried to a reasonable assurance level, with investment emissions veried to a limited assurance level. A copy of the verication statement can be found at hiscoxgroup.com/responsibility/environment. Water and waste 2022 2021 Year-on-year change Water usage 10 20 -50% Waste generated 49 34 44% Social In everything we do, we strive to be a good employer, a trusted insurer and a good corporate citizen. Our social responsibilities help to inform our customer and claims philosophies, our strategy for charitable giving and our employment practices. Being a customer-centric business Being an insurer our customers can rely on is part of our reason for being, and we continue to focus on providing easy-to-understand products that suit specic customer requirements. For example, in Hiscox London Market we enhanced our malicious attack offering with resilience training during the year; in Hiscox ILS we launched a special opportunities portfolio in response to market dynamics; and in the UK we are adapting to the FCA’s new customer-focused Consumer Duty regulations. Our approach is to consider not just the transfer of risk through insurance, but also how we can help our customers mitigate the risks they face. In cyber, we do this through the training and education we offer as part of the Hiscox Risk Academy, and in home insurance we do it through our partnership with LeakBot, an early leak detection system that we’ve provided to over 8,000 Hiscox UK insured homes to date. You can read more about our approach to risk transfer and risk mitigation on pages 18 to 19. During the year we also reected on the impact on our customers of the rising cost of living, leading to enhanced vulnerable customer training in the UK and the development of a cost of living dashboard through which to regularly monitor changing customer behaviours. The work we do with customers is recognised in our strong customer satisfaction scores for the year (see page5). Supporting our communities Supporting the communities in which we work has been part of our DNA for decades, and our charitable foundation, the Hiscox Foundation, dates back to 1987. We focus our charitable giving around three strategic pillars: s social mobility and entrepreneurship; s protecting and preserving the environment; s causes our people are passionate about. During 2022, we donated over $1.8million to good causes and our people spent over 1,400 hours volunteering. This included targeted donations that recognise specic events such as the Russia/Ukraine conict and the oods in Pakistan. During the year, in recognition of the rising cost of living and the increasing costs that charities are facing, we increased our donations to our UK multi-year partners in line with ination for the 2022/23 nancial year. Being a great place to work Building an engaged and inclusive workforce was a strategic priority for us in 2022. We made great strides in reviewing our employee proposition and introduced new rewards for colleagues including our share ownership scheme, HSX:26. We also introduced ‘Hiscox days’ – an additional two days for employees to do whatever matters most to them. A new sabbatical policy came into force, which provides four weeks’ paid leave for every ve years of service. These changes were the result of a renewed focus on listening to what employees want, and most importantly responding to it. The impact is reected in our 2022 employee engagement results – our best in ten years (see page 3). We also continue to progress our diversity, equity and inclusion (DEI) efforts, as we strive to build teams that are as diverse as the customers we serve. We currently have 18 employee network chapters, including a new ‘global abilities’ network focused on disabilities and neurodiversity, which we introduced during 2022. More information on our approach to DEI can be found on page 95 to 97. We have been an accredited Living Wage employer in the UK since 2019, but in 2022 we recognised the additional challenges of high ination levels and an increased cost of living on our people. As a result, we made one-off cost of living lump sum payments of £1,500/$1,500/€1,500 to the lowest-earning portion of our workforce – benetting 38% of our people. Governance As a global insurer, good governance practices are essential to our day-to-day business of serving customers and paying claims. That means having appropriate internal controls, policies and procedures, and structures and oversight, but it also means ensuring all employees are accountable for their actions and empowered to raise their hand if something goes wrong. As a Bermuda-domiciled, UK-listed business, we comply with the Bermuda Companies Act, the UK listing rules and local country laws in each of the locations where we operate. More information on our governance practices – including as they relate to ESG and climate-related issues – can be found in the risk management, TCFD and corporate governance sections of this report. Charitable giving and volunteering 58 Hiscox Ltd Report and Accounts 2022 Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Environmental, social and governance (ESG) Chapter 1 2 Performance and purpose Hiscox Foundation Hiscox Gives 59Hiscox Ltd Report and Accounts 2022 Social commitments and partnerships Insuring Women’s Futures UK Living Wage employer Black Insurance Industry Collective (BIIC) SEO London Number of Board members Percentage of the Board Number of senior positions on the Board (CEO, CFO, SID and Chair) Number in Executive Management Percentage of Executive Management Percentage of Executive Management and direct reports † Percentage of all employees Men 7 64% 4 7 58% 53% 49% Women 4 36% – 5 42% 47% 50% Not specied/prefer not to say – – – – – – <1% Number of Board members Percentage of the Board Number of senior positions on the Board (CEO, CFO, SID and Chair) Number in Executive Management Percentage of Executive Management Percentage of Executive Management and direct reports † Percentage of all employees White British or other white (including minority-white groups) 10 91% 3 9 82% 83% 74% Mixed/multiple ethnic groups – – – – – 1% 2% Asian/Asian British 1 9% 1 2 18% 4% 9% Black/African/Caribbean/black British – – – – – 6% 7% Other ethnic group, including Arab – – – – – – 3% Not specied/prefer not to say – – – – – 6% 4% * For the purposes of the UK Listing Rules, Executive Management includes the Group Executive Committee (the most senior executive body below the Board) and the Company Secretary, excluding administrative and support staff. † For the purposes of the UK Corporate Governance Code, senior management (which for consistency we refer to as Executive Management in the tables above) includes the Group Executive Committee and the Company Secretary and their direct reports, excluding administrative and support staff. Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Environmental, social and governance (ESG) Chapter 1 2 Performance and purpose Our approach to gender/sex and ethnicity data collection and reporting is consistently applied in the countries where we collect this data, according to local law and custom. We use the Group’s online HR management system, Workday, to collect and securely store this data. In all countries, employees can choose to self-report their gender/sex or specify that they ‘prefer not to disclose’. In the countries where we collect ethnicity data (currently UK, Bermuda, USA and Guernsey), employees can choose to self-report their ethnicity, specify that they ‘prefer not to disclose’, or not provide an answer at all (leave blank). The self-reported ethnicity options provided in each country are aligned to the options provided in that country’s government census, and have been collated corresponding to the UK Listing Rules’ prescribed categories. Any ethnicities reected in a country’s census that do not align with one of the prescribed categories in the table were included in the ‘other ethnic group’ row data. The data reported here includes the self-reported data provided by our employees in the countries where we collect the data. For any data categories where an employee has not provided a response, these employees are counted in the ‘not specied/prefer not to say’ row. We do this so that, to the best of our abilities, all employees in the countries where we collect the data are accounted for. The data does not include employees in countries where we do not collect the data. Note: some totals may not tally due to rounding. Gender/sex diversity at 31 December 2022 Ethnic diversity at 31 December 2022 60 Hiscox Ltd Report and Accounts 2022 Task Force on Climate-related Financial Disclosures (TCFD) Reporting against the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) is a requirement of the Financial Conduct Authority (FCA) for all premium-listed rms on a ‘comply or explain’ basis. We have been reporting against the TCFD-aligned ClimateWise Principles since 2019 and are public supporters of TCFD. Our annual climate report sets out our approach to climate-related matters in every part of our business, including from a governance, risk management, operations, underwriting, investment, and marketing perspective. It is our richest source of climate-related information and expands on the information set out below, so for more information go to: hiscoxgroup.com/2022climatereport. Governance Structure and oversight We have an established and embedded governance structure for climate-related matters, with robust and rigorous processes for identifying, measuring, monitoring, managing and reporting climate-related matters (including climate-related risks and opportunities) across the Group. This spans from an operational level up to the Sustainability Steering Committee, the Risk Committee of the Board, and the Board itself – see page 64 for an overview of structure, membership, roles and responsibilities and frequency of meetings, including management’s role in assessing and managing climate-related risks and opportunities. While this structure also covers broader ESG matters, climate-related matters are an important component of this and as such are regularly debated and discussed. During 2022, this included: s discussion and approval at the Sustainability Steering Committee of the 2022/23 ambitions outlined in our 2022 climate report; s annual review of the ESG exclusions policy and the responsible investment policy, coordinated by the ESG working group (and, in the case of the responsible investment policy, the Group Investment team) and approved by the Sustainability Steering Committee; s meetings with catastrophe model vendors to discuss latest modelling developments, led by our catastrophe modelling team, which contribute to the work of the Natural Catastrophe Exposure Management Group (see page 64); s deep-dive session with the Board on how we account for the effects of climate change in our modelling. In our UK legal entities, this structure is bolstered by the appointment of senior managers with overall regulatory responsibility for managing the nancial risks from climate change, in line with the UK’s Senior Managers Certicate Regime (SMCR). The climate action plans we have developed as part of SMCR are considered not only through the relevant management meetings and subsidiary boards but also at the Sustainability Steering Committee to ensure appropriate inputs and oversight and drive progress. Training and building expertise We also consider the training and development requirements of those with oversight responsibilities and accountability for climate matters to ensure we have appropriate awareness and expertise to drive progress. In 2022, this included an externally facilitated climate training session, available to all Board Directors, to explore the requirements and competencies of a climate-informed board alongside horizon scanning of future expectations and regulatory requirements. This is now an annual feature in the Board calendar so we will continue to build expertise at our most senior level in 2023. Other opportunities to further build in-house expertise are also considered on a team-by-team, function-by-function basis. For example, senior members of our in-house investment team have upskilled in ESG and climate matters by gaining accreditation in the form of the CFA Certicate in ESG Investing, and by attending a course led by The University of Oxford’s Sustainable Finance Group. We will consider further ESG or climate-specic training in 2023 as appropriate. Policies and processes The governance structure we have embedded for climate issues is also supported by a range of relevant policies and processes that we expect both our staff and our third-party providers to adhere to. These include the following: s the Hiscox Group ESG exclusions policy, more information on which can be found on page 56. Oversight of this policy belongs to the Sustainability Steering Committee, with implementation of it driven at a business unit and function level across both underwriting and investments. The policy is reviewed annually and its 2022 review resulted in no changes; s the Hiscox Group responsible investment policy, which outlines our expectations of both our in-house investment team and our external asset managers. This includes: our investment processes and Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chapter 1 2 Performance and purpose 61Hiscox Ltd Report and Accounts 2022 stewardship activities as we look to invest in companies that have sound ESG practices; how we evaluate our managers’ ESG integration; and our approach to impact investing. This policy is owned by the Group investment team with oversight from both the Sustainability Steering Committee and the Group Investment Committee. The policy is reviewed annually and its 2022 review resulted in some small adjustments to reect progress, such as becoming a Principles for Responsible Investment (PRI) signatory; s the Hiscox Group environmental policy, which outlines our approach to managing the environmental impact of our business activities and those that arise from our ownership and occupation of ofce premises. We actively manage and aim to minimise our environmental impacts, due to the resources we consume and the amount of waste our activities produce, as well as complying with relevant environmental legislation and other external requirements. While the policy is owned by our Chief Operations and Technology Ofcer and reviewed periodically, its effective implementation relies on Group-wide adherence to the environmental principles we wish to live by. During 2022, it was updated to reect the Group’s new net-zero aligned GHG targets; s the Hiscox Group supplier code of conduct, which outlines how our corporate values and commitments to doing business in a socially responsible way extends to our relationships with suppliers and any subcontractors they may use. It covers areas including our commitment to fairness in the supplier selection process; supplier diversity; engagement; our expectations of how our suppliers behave as well as their obligations in adhering to laws and regulations regarding employment, health and safety, human rights and labour practices, the environment, diversity and inclusion, and anti-bribery and corruption. It is owned by our Group procurement team, shared with suppliers during the procurement process and published on hiscoxgroup.com. The supplier code of conduct superseded the ethical guide to suppliers during 2022. These governance policies and processes are complemented by our long-standing active risk management practices, which include climate-related stress testing and scenario analysis (see pages 46 to 47), both through our own established internal programme of stress testing and scenario analysis and also as participants in market-wide activities such as the Bank of England’s Climate Biennial Exploratory Scenario (CBES) in 2021 and the PRA’s General Insurance Stress test (GIST) in 2022. Examples of the outputs of our internal work include the property extreme loss scenarios detailed on page 46, which show the potential nancial impact to the Group of events including Japanese earthquake, Japanese windstorm, European windstorm, US earthquake and US windstorm. Our risk management practices also include the work of our exposure management groups, which is outlined on pages 63 to 65. Our governance work culminates in regular, repeatable climate-related Find out more about our governance structure for climate-related matters. 64 Find out more about our modelling of extreme natural catastrophe loss scenarios. 46 public reporting and disclosures. This includes owned reports such as our annual climate report, as well as global standards that provide a means of independent peer comparison such as CDP, ClimateWise, Dow Jones Sustainability Index, MSCI and Sustainalytics. An overview of our 2022 performance resulting from these disclosures can be found on page 65. These scores are used to inform areas of improvement for the year ahead, alongside our own ESG plans, with the resulting action plans agreed by the Sustainability Steering Committee. Strategy Annual business planning ESG and specically climate issues form part of the Board-approved Group business plan for the year ahead. This plan outlines the performance of key business areas during the prior year, and the strategic priorities for the year ahead. Areas covered include underwriting, investments, risk, IT, nance and marketing, as well as sustainability, and the plan is used by senior management to guide the Group’s annual business strategy and nancial planning where appropriate. The 2022 Group business plan included an overview of key climate-related areas of focus for the year ahead such as: s an annual review of the Group ESG exclusions policy and the responsible investment policy, both of which were completed during 2022, with any recommended changes to the policies approved through the appropriate governance channels; s the development of a broader suite of climate risk metrics and transition pathway-aligned targets for the investment portfolio, which Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Task Force on Climate-related Financial Disclosures (TCFD) Chapter 1 2 Performance and purpose 62 Hiscox Ltd Report and Accounts 2022 has been considered during 2022 as part of the creation of an ESG dashboard for investments, and shared with all relevant working groups and committees, up to and including the Investment Committee of the Board; s enhancements to existing processes for measuring and monitoring the Group’s carbon emissions, which were addressed during 2022 through the introduction of a half-year footprinting process to provide mid-year oversight of the data and which further improved data quality. These outputs are included as part of the 2022 performance review within the 2023 Group business plan, with new strategic deliverables (including climate-related deliverables) set for the year ahead. Climate-related risks and opportunities We consider climate change to be a cross-cutting risk with the potential to impact each existing risk type. It could have a material impact on the Group, by altering the frequency and severity of extreme weather events that we are exposed to through our underwriting, but it could also present an opportunity, driving greater demand for cover against changing weather trends and creating a need for innovative new products that meet emerging needs. In addition to the physical impacts of a changing climate, the Group is also aware that the transition to a low-carbon economy, necessary to limit the worst physical impacts of global warming, also presents signicant business challenges, as well as opportunities. One example of this is climate litigation risk, where one party may seek to Find out more about our full GHG inventory, including emissions arising from our investment portfolio. More information on our approach to ESG and, in particular, climate can be found at hiscoxgroup.com/responsibility. 57 GHG emissions are calculated according to the Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard (revised edition) and UK government SECR guidelines. Note some emissions totals may not tally due to rounding. This table shows Group GHG emissions in line with SECR requirements, which differ from our full GHG inventory on page 57. In our full GHG inventory you will nd information on emissions arising from investments, business travel and other elements not required under SECR. Near-term climate risks and opportunities (0-5 years) Medium- to long-term climate risks and opportunities (5+ years, up to 2050) More frequent and more intense natural catastrophes arising from climate change, such as oods and storms, could result in changes to current claims patterns. These claims will not only come from damage to property but also from other knock-on effects, such as global supply chain disruption or scarce resources. However, given the majority of the policies we write are annual (re)insurance policies, we regularly consider our exposures to climate-related risks which gives us the opportunity to adjust pricing and appetite accordingly. An overview of our modelling of extreme natural catastrophe loss scenarios can be found on page 46. Climate-related risks have the longer-term potential to impact regulatory risk, credit risk, legal risk, reputational risk, and technology risk. We have several emerging risks forums across the organisation which are designed to identify emerging, longer-term risks and opportunities, including climate-related risks and opportunities. Alongside our in-house modelling and research expertise, these groups ensure our work takes into account climate-related issues over a range of business planning time frames. There are also the nancial risks which could arise from the transition to a lower-carbon economy, such as a slump in the price of carbon-intensive nancial assets. Our ESG exclusions policy, which will see us reduce our exposures to the worst carbon emitters in both underwriting and investments, prepares us for this as do our new GHG emission reduction targets. For more information, see page 56. There is also the longer-term litigation risk: that those who have suffered loss from climate change might then seek to recover those losses from others who they believe may have been responsible. Where such claims are successful, those parties against whom the claims are made may seek to pass on some, or all, of the cost to insurance rms through policies such as professional indemnity or directors and ofcers’ insurance. We have signicant expertise in areas such as ood, where we have a suite of products and considerable risk experience; renewable energy where we are supporting a number of major wind and solar energy projects; and in the decommissioning of offshore carbon assets which is an area we insure. These are lines of business where we could see increased opportunity over time, and in some cases are already benetting from changing customer trends, for example in US ood, where demand is growing and our product offering, use of data and technology means we are well placed to serve more customers with ood cover. While in the long term as a property casualty insurer, Hiscox is certainly exposed to climate-related risks, we believe our exposures can be managed through time as a result of how we conduct our business. For example, through the exibility we have in our predominantly annual underwriting contracts, and through the liquidity of our investment portfolio which lends itself to constant adjustment. This exibility is our key tool for managing the multi-decade challenge of climate risks holistically. Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Task Force on Climate-related Financial Disclosures (TCFD) Chapter 1 2 Performance and purpose 63Hiscox Ltd Report and Accounts 2022 Streamlined Energy and Carbon Reporting (SECR) GHG emissions recover climate-change-related losses from another who they believe may have been responsible. The governance and risk management structures we have in place are critical to the delivery of the annual Group operating plan (outlined above) and ensure a coordinated approach to climate and other issues across the Group. These structures are supported by investments in technology – to ensure the right modelling and data are available to support our pricing and exposure – and by in-house expertise – where we combine off-the-shelf climate views with our own claims expertise and insight to form a unique view (what we call the ‘Hiscox view of risk’). Therefore, we consider the potential impact from climate-related issues over short-, medium- and long-term time horizons which are dened opposite and which broadly align with business planning timeframes. In 2022, Hiscox Syndicate 33, Syndicate 3624 and Hiscox Insurance Company (HIC) participated in the Bank of England’s General Insurance Stress Test Exercise (GIST). The objectives of the GIST 2022 exercise were to assess resilience to severe but plausible natural catastrophe, as well as cyber scenarios, to gather information about rms’ modelling and risk management capabilities and to enhance the PRA’s and rms’ abilities to respond to future shocks. While the exercise did not aim to assess the nancial impact specically from climate change, the climate-related (atmospheric) scenarios it explored – US hurricanes, European/UK windstorms and UK ood – represented severe but plausible realisations of current climate conditions chosen to reect rms’ exposures and business models. Industry-wide stress tests such as the GIST support our established and embedded programme of internal stress testing and scenario analysis, and contribute to their continued evolution. In order to meet future disclosure requirements in this area, we continue to review a range of scenario impacts through internal workshops, from which potential management actions can be identied and our strategy and risk management approach can be further rened. This includes planned activity for 2023 to review our underwriting portfolios against a range of global warming scenarios, including a below two degrees scenario, using both our own and credible third-party data around future target states for climate. We will provide a further update on our progress in this area in our 2023 Annual Report. Risk management Approach While there are certain nuances to climate risk, we consider it to be a cross-cutting risk with potential to impact each existing risk type, rather than a stand-alone risk. Climate-related risks, among other major exposures, are monitored and measured both within our business units and at Group level, so we understand how much overall risk we take and what is being done to manage it. We look at how different risks interact and whether these may result in correlations or concentrations of exposure that we need to know about, monitor and manage. By design, our Group risk management framework provides a controlled and consistent system for the identication, measurement, mitigation, monitoring and reporting of risks (both current and emerging) and so is structured in a way that allows us to continually and consistently manage the various impacts of climate risk on the risk prole. For example, relevant climate considerations are included in our risk and control register and our risk and control self-assessment process, as well as in our risk policies. This means that climate-related risk drivers are assessed and recorded against the risks on our risk and control register, and ensures that we do not consider any single climate risk factor in isolation. Structure and oversight Our Risk Committee has the main responsibility for assessing the climate-related risks and opportunities we face. It advises the Board on how best to manage the Group’s risks, by reviewing the effectiveness of risk management activities and monitoring the Group’s actual risk exposure. The Risk Committee relies on frequent updates from within the business, including those arising from the management committees and working groups that report up through the Risk Committee, some of which are outlined below, and from independent risk experts for its understanding of the risks facing both our business and the wider industry. Group Underwriting Review (GUR) The GUR is a Group management committee focused on assessing progress against the Group’s strategic underwriting priorities, reviewing and challenging the Group’s underwriting portfolio and loss ratio performance, and approving key underwriting risks. It also serves as an escalation point for underwriting governance and control issues. The committee meets at least ve times a year, is chaired by the Group Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Task Force on Climate-related Financial Disclosures (TCFD) Chapter 1 2 Performance and purpose Activity 2022 energy (kWh) 2022 emissions (tCO 2 e) 2021 energy (kWh) 2021 emissions (tCO 2 e) Year-on-year change in emissions (tCO 2 e) Scope 1 total 786 678 16% Natural gas 2,439,188 445 2,342,644 441 1% Company cars 1,048,235 250 37 7,0 5 6 87 189% Refrigerants 91 150 -39% Scope 2 (market-based) total 927 866 7% Electricity (location-based) 5,311,279 1,313 5,603,303 1,484 -12% Electricity (market-based) 5,311,279 874 5,603,303 847 3% District heating 307,720 53 108,999 19 182% Operational Scope 3 total 19,298 17,116 13% Total operational footprint (market-based) 21,011 18,660 13% Total Scope 1 and 2 – UK proportion (market-based) 29% 36% -20% 64 Hiscox Ltd Report and Accounts 2022 Chief Executive Ofcer, and attended by other senior leaders including the Group Chief Financial Ofcer, Group Chief Underwriting Ofcer, Group Chief Risk Ofcer – with experts invited from actuarial, claims, underwriting risk and reinsurance. A number of working groups feed into the GUR, including some with particular climate relevance such as the Natural Catastrophe Exposure Management Group (see below) and the Casualty Exposure Management Group, which considers among other things risks associated with climate litigation. In focus: the Natural Catastrophe Exposure Management Group We review natural catastrophe risk at least quarterly, through our Natural Catastrophe Exposure Management Group. This group is chaired by the Group Chief Underwriting Ofcer and attended by other Hiscox senior managers with responsibility for catastrophe-exposed business. This group looks at the risk landscape, exposure monitoring and capital modelling for climate-related perils, and recommends, based on the latest observations and scientic knowledge, which models should be used for each peril, and, if necessary, how they should be adapted to reect our best view of the risk. They also identify new areas of risk research. All changes to modelling policy and all of our research prioritisations and results are signed off and authorised by this group, decisions are recorded, and models are adapted to reect policy. Their work not only enables us to continuously rene our models (using data to make better decisions): it also supports future product development. ESG governance structure How we manage and monitor ESG issues to ensure appropriate accountability and oversight. This structure is supported by other established roles and teams that contribute to our ESG story. These include our employee-led networks including our green teams, our governance committees, and our Natural Catastrophe Exposure Management Group. These areas are represented in elements of this structure. Board s Oversight of long-term ESG vision, strategy, priorities and performance against agreed metrics and targets. s Ensures governance and accountability in place with sufcient support. s Typically twice-yearly discussion on ESG strategy, trends, opportunities, vulnerabilities, and emerging issues. Risk Committee s Advises Board on ESG strategy, key priorities, risk prole, risk exposures and opportunities. s Recommends proposals for consideration by the Board as required. Group Risk and Capital Committee (GRCC) s Quarterly reporting on ESG matters from Sustainability Steering Committee. s Sets high-level Group strategy, priorities and ensures delivery across the Group. Group Executive Committee (GEC) s Periodic ESG sessions. s Sets business unit or function ESG-related strategy, priorities and drives delivery through business units and functions. Sustainability Steering Committee (SSC) s Sub-committee of the GRCC, responsible for execution of the agreed ESG strategy, driving actions and delivery at a Group level. s Typically meets quarterly and embeds sustainability risks and opportunities. s Oversees effective use of resources and tracks Group and entity-level sustainability performance. s Ensures senior management-level involvement and accountability for sustainability issues, with senior representation from areas including underwriting, investments and operations. ESG working group s Operational body, providing central point of coordination and expertise for ESG-related activity across the Group. s Manages ESG-related Group reporting, disclosures and communications. s Meets monthly and provides input and recommendations to management on ESG matters. s Focuses on ESG-related research, including external monitoring and expectations. Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Task Force on Climate-related Financial Disclosures (TCFD) Chapter 1 2 Performance and purpose 65Hiscox Ltd Report and Accounts 2022 For example, we have calibrated and delivered a loss model that will improve the pricing capabilities for one of our ood insurance products, FloodPlus. We also included the use of additional model sources for location-level pricing. In addition, we are working with data providers to augment FloodPlus with rst-oor elevation data, and are exploring the use of machine learning to augment the information we receive from vendor ood hazard maps. Group Risk and Capital Committee (GRCC) The GRCC is a Group management committee focused on risk and capital management. It covers all types and categories of risk, including but not limited to underwriting, reserving, market, credit, operational and strategic risk (see pages 8 to 11 for a summary of our key risks), as well as risk aggregation, concentration and dependencies. The committee meets four times a year, is chaired by the Group Chief Executive Ofcer, and attended by other senior leaders including the Group Chief Financial Ofcer, Group Chief Underwriting Ofcer, Group Chief Risk Ofcer, and the Group Head of Capital Management – with other experts invited from across the business as required. A number of committees feed into the GRCC, including some with particular climate relevance such as the Sustainability Steering Committee and the Grey Swan Group (see below). In focus: the Grey Swan Group The focus of the Grey Swan Group is to consider various enterprise emerging risks identied from across the business and to provide a forum for discussion to ensure Hiscox has the relevant grey swans identied and the right actions in place to deal with them. A number of elements feed into this process including enterprise emerging risk scanning; regulatory horizon scanning; casualty exposure management; strategic and business planning; claims and actuarial reserving; and any other relevant business unit or function inputs. Rapidly evolving expectations on company’s responses to ESG and climate change is considered as part of this group, in addition to other matters unrelated to ESG or climate change. The risk management processes we have established and embedded for climate-related matters feed into the annual review of the operating plan, the long-term strategy planning process, as well as forward-looking assessment scenarios and stress tests and reverse stress test scenarios. Metrics and targets The cornerstone of our climate-related metrics and targets is our Board-approved GHG emission reduction targets, which were created using SBTi methodologies that align with a 1.5°C net-zero world by 2050. This is in keeping with our commitments as a signatory to the 2015 Paris Climate Agreement. GHG targets Our GHG targets commit us to: s reduce our Scope 1 and Scope 2 emissions by 50% by 2030, against a 2020 adjusted baseline; s reduce our Operational Scope 3 † emissions by 25% per FTE by 2030, against a 2020 adjusted baseline; s transition our investment portfolios to net-zero GHG emissions by 2050; s engage with our suppliers, brokers and reinsurers on our net-zero targets and on their plans to adopt Paris-aligned climate targets; s monitor emerging standards around underwritten emissions and collaborate across our industry on their development, aligning with best practice in this area as it emerges. * Baseline year adjusted in light of Covid-19-related lockdown measures,to reect a more normal year in terms of business travel etc. † Operational Scope 3 emissions predominantly consist of purchased goods and services and capital goods, and business travel (air, rail and car travel). More information on the Group’s operational Scope 3 emissions can be found on page 57. Interim GHG targets and progress We recognise that achieving these targets will take collective, consistent effort and have started work towards achieving them, as outlined below. This will continue in 2023, when we will also publish our low-carbon transition plan for the Group. s In addressing our Scope 1 and Scope 2 targets, we have this year introduced a new half-year carbon footprint process in order to further enhance data transparency and provide a new midpoint for internal tracking and review. We have also reviewed all electricity contracts across the Group to further improve our evidence base and oversight as we migrate to renewable electricity contracts wherever possible. Where we have total control over our utility providers, this is easier to do, but where that control is shared, or where it belongs to our landlords, we will petition for change. s On Scope 3, where emissions are dominated by our investments, as previously announced we have set a number of interim targets: that we will aim for more than Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Task Force on Climate-related Financial Disclosures (TCFD) Chapter 1 2 Performance and purpose ESG disclosure We recognise the importance of credible, repeatable and comparable ESG disclosure which is why we contribute to a number of independent ESG standards. 2022: B grade 2021: B- grade 2022: 83% 2021: 72% 2022: AA grade 2021: A grade 2022: 45/100 2021: 40/100 2022: 28.7 2021: 27.1 66 Hiscox Ltd Report and Accounts 2022 TCFD disclosure mapping compliance statement Disclosures have been made against the TCFD recommendations, taking into account the TCFD supporting guidance, and in consideration of the FCA listing rules. Where additional information outside of this report aids our TCFD disclosure, links to this information have been provided, and where we have not yet disclosed fully against the recommended TCFD disclosure, we have outlined why this is and the actions already being taken towards meeting the disclosure requirements within the timeframe given. Theme Recommended disclosure Status Reference Governance Disclose the organisation’s governance around climate-related risks and opportunities. Describe the organisation’s governance around climate-related risks and opportunities. Disclosed. 2022 climate report pages 9 to 12. CDP climate questionnaire 2022. Describe management’s role in assessing and managing climate-related risks and opportunities. Disclosed. 2022 climate report pages 15 to 16. CDP climate questionnaire 2022. Strategy Disclose the actual and potential impacts of climate-related risks and opportunities on the organisation’s businesses, strategy, and nancial planning where such information is material. Describe the climate-related risks and opportunities the organisation has identied over the short, medium, and long term. Disclosed. 2022 climate report pages 24 and 28. CDP climate questionnaire 2022. Describe the impact of climate-related risks and opportunities on the organisation’s businesses, strategy, and nancial planning. Focus on developing low-carbon transition plan to enhance disclosure. CDP climate questionnaire 2022. Describe the resilience of the organisation’s strategy, taking into consideration different climate-related scenarios, including a 2°C or lower scenario. Focus on identifying risks and opportunities to progress towards disclosure. 2022 climate report page 13. More information on steps being taken towards meeting this disclosure requirement can be found on page 63. Risk management Disclose how the organisation identies, assesses, and manages climate-related risks. Describe the organisation’s processes for identifying and assessing climate-related risks. Disclosed. 2022 climate report pages 15 to 16 and 27 to 32. CDP climate questionnaire 2022. Describe the organisation’s processes for managing climate-related risks. Disclosed. 2022 climate report pages 15 to 16 and 27 to 32. CDP climate questionnaire 2022. Describe how processes for identifying, assessing, and managing climate-related risks are integrated into the organisation’s overall risk management. Disclosed. 2022 climate report pages 10 to 13 and 15 to 16. CDP climate questionnaire 2022. Metrics and targets Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information is material. Disclose the metrics used by the organisation to assess climate-related risks and opportunities in line with its strategy and risk management process. Additional indicators to monitor and manage risk exposure, including TCFD’s cross-industry climate-related metrics, to be considered over time. 2022 climate report pages 21 and 37. CDP climate questionnaire 2022. See Hiscox Group website. Disclose Scope 1, Scope 2 and, if appropriate, Scope 3 GHG emissions and the related risks. Disclosed. 2022 climate report pages 36 to 37. CDP climate questionnaire 2022. See Hiscox Group website. Describe the targets used by the organisation to manage climate-related risks and opportunities and performance against targets. Disclosed. 2022 climate report pages 36 to 38. CDP climate questionnaire 2022. 25% of our corporate bond portfolio by invested value to have net-zero/Paris-aligned targets by 2025, followed by an additional 25% by AUM coverage every ve years as we aim to be on a linear path to 100% portfolio coverage by 2040. We are currently making good progress towards the rst of our interim targets, with approximately 20% of our corporate bond portfolio having net-zero/Paris-aligned targets as at year-end, and will continue to engage with our managers on further net-zero plans and action. Progress against these targets will be driven by our ESG working group and overseen by our Sustainability Steering Committee. Progress will also be recorded through our annual carbon reporting cycle, and we will seek to remain operationally carbon neutral through offsetting, as we have been since 2014. More information on our 2022 carbon emissions can be found on page 57. Metrics and targets beyond GHG s The monitoring and measurement of underwriting and investment exposure to carbon-heavy sectors including coal-red power plants and coal mines, oil sands and Arctic energy exploration (beginning with the Arctic National Wildlife Refuge), in line with our Group ESG exclusions policy. s Annual investment portfolio sustainability reviews, taking into account climate-related issues, in line with our responsible investment policy. s The growth and exposure of sustainable underwriting products such as ood and renewable energy products. These activities are owned by the relevant business areas, from underwriting to investments, with progress reported through the embedded ESG governance structures. These metrics and targets are complemented by external key performance indicators, such as our public ESG disclosure scores (see page 65) and our annual climate report, which assess our progress against climate-related activities during the prior year and outlines our plans for climate-related action in the year ahead. Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Task Force on Climate-related Financial Disclosures (TCFD) Chapter 1 2 Performance and purpose 67Hiscox Ltd Report and Accounts 2022 TCFD disclosure mapping compliance statement Disclosures have been made against the TCFD recommendations, taking into account the TCFD supporting guidance, and in consideration of the FCA listing rules. Where additional information outside of this report aids our TCFD disclosure, links to this information have been provided, and where we have not yet disclosed fully against the recommended TCFD disclosure, we have outlined why this is and the actions already being taken towards meeting the disclosure requirements within the timeframe given. Theme Recommended disclosure Status Reference Governance Disclose the organisation’s governance around climate-related risks and opportunities. Describe the organisation’s governance around climate-related risks and opportunities. Disclosed. 2022 climate report pages 9 to 12. CDP climate questionnaire 2022. Describe management’s role in assessing and managing climate-related risks and opportunities. Disclosed. 2022 climate report pages 15 to 16. CDP climate questionnaire 2022. Strategy Disclose the actual and potential impacts of climate-related risks and opportunities on the organisation’s businesses, strategy, and nancial planning where such information is material. Describe the climate-related risks and opportunities the organisation has identied over the short, medium, and long term. Disclosed. 2022 climate report pages 24 and 28. CDP climate questionnaire 2022. Describe the impact of climate-related risks and opportunities on the organisation’s businesses, strategy, and nancial planning. Focus on developing low-carbon transition plan to enhance disclosure. CDP climate questionnaire 2022. Describe the resilience of the organisation’s strategy, taking into consideration different climate-related scenarios, including a 2°C or lower scenario. Focus on identifying risks and opportunities to progress towards disclosure. 2022 climate report page 13. More information on steps being taken towards meeting this disclosure requirement can be found on page 63. Risk management Disclose how the organisation identies, assesses, and manages climate-related risks. Describe the organisation’s processes for identifying and assessing climate-related risks. Disclosed. 2022 climate report pages 15 to 16 and 27 to 32. CDP climate questionnaire 2022. Describe the organisation’s processes for managing climate-related risks. Disclosed. 2022 climate report pages 15 to 16 and 27 to 32. CDP climate questionnaire 2022. Describe how processes for identifying, assessing, and managing climate-related risks are integrated into the organisation’s overall risk management. Disclosed. 2022 climate report pages 10 to 13 and 15 to 16. CDP climate questionnaire 2022. Metrics and targets Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information is material. Disclose the metrics used by the organisation to assess climate-related risks and opportunities in line with its strategy and risk management process. Additional indicators to monitor and manage risk exposure, including TCFD’s cross-industry climate-related metrics, to be considered over time. 2022 climate report pages 21 and 37. CDP climate questionnaire 2022. See Hiscox Group website. Disclose Scope 1, Scope 2 and, if appropriate, Scope 3 GHG emissions and the related risks. Disclosed. 2022 climate report pages 36 to 37. CDP climate questionnaire 2022. See Hiscox Group website. Describe the targets used by the organisation to manage climate-related risks and opportunities and performance against targets. Disclosed. 2022 climate report pages 36 to 38. CDP climate questionnaire 2022. Read more about our approach to climate change in our 2022 climate report, available online at hiscoxgroup.com/2022climatereport. * Our 2022 climate report was published in August2022 and covers our climate-related activities between July 2021 and July 2022. Where we reference information from that report, that information remains correct at 8 March 2023. Read more in our 2022 CDP disclosure hiscoxgroup.com/cdpdisclosure2022. Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Task Force on Climate-related Financial Disclosures (TCFD) Chapter 1 2 Performance and purpose 68 Hiscox Ltd Report and Accounts 2022 Q& A: with Regine Fiddler Chief Marketing Ofcer, Hiscox USA Brand ambassador Building an insurance brand is about so much more than advertising and digital marketing. It’s about showing customers, partners and brokers that you genuinely care. > 69Hiscox Ltd Report and Accounts 2022 70 Hiscox Ltd Report and Accounts 2022 Q: What was it that initially drew you to joining Hiscox? A: For me, the key drivers were what Hiscox stands for as an employer and how I saw that exhibited through our advertising to customers, brokers and agents. What I thought was compelling was that we capture the small business audience in a way that other brands typically don’t. It’s very authentic, it’s very real. For a marketer, insurance may not seem like the sexiest sector, but I love industries where marketing isn’t just about selling a pretty product. It’s about a product that can make a real difference in people’s lives. Also, insurance isn’t something that’s easy to market, so it challenges you a little more! Q: What do you think are the key elements to building a successful insurance brand? A: When I think about building a brand, it’s not really about advertising. It’s not about having a pretty logo. Instead, it’s about every touchpoint that drives an emotional benet. Whether you’re a customer, a partner or a broker, when you pick up the phone and call us, or when you go through our e-commerce experience, do you get the emotional benet of knowing who we are and what our value proposition is? Do you feel, “Hey, these people really are experts, and they’re so efcient and reliable”? Do we make you feel like you’ve got a partner who’s really got you covered? Advertising and digital marketing are important, but it’s the soft skills that we exhibit in our interactions that matter most. Especially in a commodity business, customers don’t rave if you only deliver what they expect. We need to go beyond that. We need to show that we genuinely care. Every interaction, every communication, has to exhibit that. Q: Hiscox USA has been going through a strategic shift on the broker side. Tell us about that. A: For our broker channel, our strategy is to home in on where we have the right products, as well as the right underwriting expertise to provide the very best solutions. So we made the decision that the sweet spot for us is serving small businesses with annual revenues of under $25million, though we’re also continuing to serve businesses with up to $100million in revenue. Writing anything over that wasn’t core to our expertise. As a result, we’ve slimmed down our appetite for products that were being sold to companies over $100million. Unlike a lot of carriers, we remain truly focused on small business. There is plenty of opportunity in that space – we have over 30million small businesses in the USA! So many successful companies start out with entrepreneurs that have one or two employees. Give them what they need, and they’ll stay with you as they grow. That’s how we’ll win in this category. Q: When you’re dealing with smaller, more entrepreneurial businesses, what are the buttons you’re trying to push? A: One of the main problems for small businesses in choosing insurance is they think it’s complex and time-consuming, and they don’t really understand it. Their pain point is, “This is complicated, I don’t even know why I need it”. What we should be thinking is, how do we provide the information they need in a way that’s digestible? Through content marketing, we want them to understand why it’s important to have insurance, what it covers, and what is most applicable to them. It’s about educating the customer and providing them with efcient information to make the best decision for their business. It’s about focusing on their needs. How do we, as our slogan says, ‘encourage courage’? How do we help them pursue their dreams? Q: What other forms of marketing work well for you? A: Obviously we have brand marketing and we have acquisition marketing, but within that I would say about 20-25% of our marketing balance is focused on grassroots marketing. We’ve been Regine Fiddler joined Hiscox in November 2020, with a long track record of building and growing brands in the banking and ntech sectors. Based in New York, she is tasked with driving the next phase of Hiscox USA’s brand-building to support its laser focus on small business insurance. Q& A: with Regine Fiddler Chief Marketing Ofcer, Hiscox USA 71Hiscox Ltd Report and Accounts 2022 going to small business trade shows, we’ve been building connections with diverse small business segments like the US Hispanic Chamber of Commerce. That allows us to interact with business owners, which is really important to understanding what makes them tick. This isn’t static, of course, and what we’re seeing now is that they care about much more than just the price of insurance – they care about who’s really standing up for them when they need them the most. That means a lot to us because we pride ourselves on being customer focused and having that strong customer relationship. Q: How does marketing work across Hiscox as a global organisation? How connected are you with your peers in other regions? A: That’s a very timely question, because we’re currently undergoing a global brand refresh project with the Group. We’ve always been committed to our brand being represented consistently across the countries in which we operate, so this is about us coming together as a global marketing organisation and dening who we are right now and who we want to be as the business grows. We’re now testing a couple of concepts with customers across different countries so it’s a pretty exciting time. Q: So, where do you see the biggest opportunities for Hiscox USA? A: I think it’s in our continued investment in digital. And not just in partnerships, but direct-to-consumer and in the retail trade, because brokers are going to want more tools and more technology to drive efciency across their channel. We’ve seen some of that, but it’s not over yet. I love where we stand in our digital evolution. We know that we need to be great on the digital side, but we also know that our business is based on relationships. A broker wants to be sure that there’s an underwriter or a relationship manager on the other end of the phone when they need them. Right now, most carriers are really good at the relationship side, but they’re not really developed on the digital side. Or you have insurtechs who are really great at digital, but miss the mark when it comes to building those relationships in the retail traded channel. We want to make sure that whoever you are, we’ve provided a path to meet your needs and that’s something that makes Hiscox unique in the US market. Q: Outside of work, what gives you energy? A: My family, for sure. It’s a simple thing. I have a 14-year-old son, and watching him grow up, watching him embrace life and be much braver than I ever was at 14 – that is my greatest source of energy and happiness. When I think about building a brand, it’s not really about advertising. It’s not about having a pretty logo. Instead, it’s about every touchpoint that drives an emotional benet.” For a marketer, insurance may not seem like the sexiest sector, but I love industries where marketing isn’t just about selling a pretty product. It’s about a product that can make a real difference in people’s lives.” Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chapter 1 2 Performance and purpose 72 Hiscox Ltd Report and Accounts 2022 Board of Directors Non Executive Chairman Robert Childs (Aged 71) Appointed Chairman: February 2013 Appointed to the Board: September 2006 Relevant skills, experience and contribution s Extensive knowledge of Hiscox, having worked for the Group for over 30 years. s Signicant expertise in insurance cycle management, having worked through unprecedented large loss events such as 9/11 and Hurricanes Katrina, Rita and Wilma. Robert joined Hiscox in 1986 and has held a number of senior roles across the Group, including Active Underwriter for Syndicate 33 and Group Chief Underwriting Ofcer, before becoming Non Executive Chairman in February 2013. Robert is also Chair of the Nominations and Governance Committee, the Investment Committee, and the Hiscox Syndicates Limited Board. He joined the Council of Lloyd’s in 2012 and served as Deputy Chairman of Lloyd’s from 2017 to 2020. External board appointments None. Executive Director Aki Hussain (Aged 50) Group Chief Executive Ofcer Appointed to the Board: September 2016 Relevant skills, experience and contribution s Considerable experience of providing strategic, nancial and commercial management and in-depth knowledge of the regulatory and compliance environment. s Signicant experience of driving business change. Aki joined Hiscox in 2016 as Group Chief Financial Ofcer and became Group Chief Executive Ofcer in 2022. Aki also sits on the Board of a number of Hiscox subsidiary companies. Prior to Hiscox, Aki held a number of senior roles across a range of sectors, including Chief Financial Ofcer of Prudential’s UK and Europe business, and Finance Director for Lloyds Banking Group’s consumer bank division. Aki is a Chartered Accountant, having trained with KPMG. External board appointments Visa Europe Limited. Executive Director Joanne Musselle (Aged 52) Group Chief Underwriting Ofcer Appointed to the Board: March 2020 Relevant skills, experience and contribution s Considerable underwriting expertise, including experience of managing underwriting portfolios in our key markets. s Signicant knowledge of Hiscox, particularly Hiscox Retail, having worked for the Group for 20 years. Joanne joined Hiscox in 2002 and has held a number of roles across the Group, including Head of UK Claims, Chief Underwriting Ofcer for Hiscox UK & Ireland, and Chief Underwriting Ofcer for Hiscox Retail. Joanne also sits on the Board of a number of Hiscox subsidiary companies. Prior to Hiscox, Joanne spent almost ten years working in a variety of actuarial, pricing and reserving roles at Axa and Aviva in both the UK and Asian markets. External board appointments Realty Insurances Ltd. Senior Independent Director Colin Keogh (Aged 69) Appointed to the Board: November 2015 Relevant skills, experience and contribution s Valuable nancial services experience. s Signicant knowledge of how to run an international nancial business. Colin has spent his career in nancial services, principally at Close Brothers Group plc where he worked for 24 years and served as CEO for seven years until 2009. Colin is Chair of the Hiscox Insurance Company Limited Board and also of the Remuneration Committee. External board appointments Ninety One Plc; Ninety One Ltd. Independent Non Executive Director Donna DeMaio (Aged 64) Appointed to the Board: November 2021 Relevant skills, experience and contribution s Extensive nancial services experience, particularly in the USA. s Proven expertise in overseeing global auditing activities. Donna has over 35 years’ nancial services experience, gained across banking and insurance. She was AIG’s General Insurance Global Chief Operating Ofcer and also served as their Global Chief Auditor. Donna was Chief Executive and Chair of the Board at United Guaranty, CEO and Chair of the Board at MetLife Bank and was a PwC Financial Services Partner. Donna serves on the board of Hiscox Insurance Company Inc. as a Non Executive Director and is Chair of the Audit Committee. External board appointments Azure; State Street Corporation. Executive Director Paul Cooper (Aged 50) Group Chief Financial Ofcer Appointed to the Board: May 2022 Relevant skills, experience and contribution s Considerable experience of nancial and commercial management within a complex regulatory and compliance environment. s Qualied Chartered Accountant, with signicant experience of both the retail and Lloyd’s insurance markets. Paul joined Hiscox in 2022 as Group Chief Financial Ofcer. With over 25 years of nancial services experience, Paul has held a number of senior roles, including most recently Interim Group Chief Financial Ofcer at M&G Plc and Chief Financial Ofcer for The Prudential Assurance Company. Paul is a qualied Chartered Accountant, having trained with PwC, and sits on the board of a number of Hiscox subsidiary companies. External board appointments Association of British Insurers. 73Hiscox Ltd Report and Accounts 2022 Chapter 3 72 Governance Board of Directors Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chapter 1 2 Performance and purpose Independent Non Executive Director Michael Goodwin (Aged 64) Appointed to the Board: November 2017 Relevant skills, experience and contribution s Signicant knowledge of the Asian insurance market. s Deep understanding of risk management as a trained actuary. Michael has over 25 years’ experience in the insurance industry, having worked in Australia and the Asia Pacic region for QBE Insurance Group for over 20 years. Michael started his career as an actuary, is a Fellow of the Institute of Actuaries of Australia and served as Vice President of the General Insurance Association of Singapore between 2006 and 2012. Michael serves on the DirectAsia Board as a Non Executive Director. External board appointments Partner Reinsurance Asia Pte Ltd; Steadfast Distribution Services Pte Ltd; NCI Brokers (Asia) Pte Ltd; Galaxy Insurance Consultants Pte Ltd; Enya-Lea Pte Ltd; Werombi Pte Ltd. Independent Non Executive Director Thomas Huerlimann (Aged 59) Appointed to the Board: November 2017 Relevant skills, experience and contribution s Considerable experience of leading a global business. s Extensive knowledge of the European insurance market. Thomas has 30 years’ experience in banking, reinsurance and insurance. He was CEO Global Corporate at Zurich Insurance Group, a $9 billion business working in over 200 countries. Prior to that, he held senior positions at Swiss Re Group and National Westminster Bank. Thomas serves on the Hiscox SA Board as a Non Executive Director. External board appointments Leadway Assurance Ltd, Nigeria. Independent Non Executive Director Anne MacDonald (Aged 67) Appointed to the Board: May 2015 Relevant skills, experience and contribution s Extensive marketing expertise, particularly in the USA. s Sizeable experience in developing well-known global brands. Anne has served as Chief Marketing Ofcer at four Fortune 100 companies, and been in charge of some of the most recognised brands in the world, including Citigroup, Travelers, Macys and Pizza Hut. Anne serves as the Employee Liaison for Hiscox. External board appointments Boot Barn Holdings, Inc.; IGNITE National; Visiting Nurse & Hospice of Litcheld County. Independent Non Executive Director Constantinos Miranthis (Aged 59) Appointed to the Board: November 2017 Relevant skills, experience and contribution s Deep understanding of Bermuda’s (re)insurance industry. s Senior leadership experience in the reinsurance sector. Costas served as President and CEO of PartnerRe Ltd, one of the world’s leading reinsurers, until 2015 and prior to that was a Principal of Tillinghast-Towers Perrin in London, where he led its European non-life practice. He is a Fellow of the UK Institute and Faculty of Actuaries and a resident of Bermuda. Costas serves on the Hiscox Insurance Company (Bermuda) Limited Board as a Non Executive Director. External board appointments Argus Group Holdings Limited; Pacic Life Re; Gatland Holdings Jersey Limited. Independent Non Executive Director Lynn Pike (Aged 66) Appointed to the Board: May 2015 Relevant skills, experience and contribution s Strong background in the US nancial services sector. s Signicant knowledge of providing commercial solutions for small businesses, particularly in the USA. Lynn worked in the US banking industry for nearly four decades, most recently as President of Capital One Bank. Before that, she was President of Bank of America’s small business banking division, a multi-billion Dollar business with 110,000 clients and over 2,000 employees. Lynn serves on the Hiscox Insurance Company Inc. Board as a Non Executive Director and is Chair of the Risk Committee. External board appointments American Express Company (NYSE: AXP); American Express National Bank; Bankwork$ Advisory; California State University Channel Islands Foundation. Chair of Committee is highlighted in solid. Group General Counsel and Company Secretary Marc Wetherhill (Aged 50) Marc has signicant legal and governance experience, and is the Principal Representative to the Bermuda Monetary Authority for the Hiscox Group. He previously served as Chief Legal Counsel and Chief Compliance Ofcer at PartnerRe Ltd, having trained as a solicitor in London, and is a member of the Bermuda Bar. Member of the Audit Committee Member of the Nominations and Governance Committee Member of the Remuneration Committee Member of the Risk Committee Member of the Investment Committee Chapter 3 72 Governance Board of Directors Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chapter 1 2 Performance and purpose 74 Hiscox Ltd Report and Accounts 2022 Departures and appointments Executive appointments Paul Cooper (effective 9 May 2022) Non Executive appointments None. Executive retirements None. Non Executive retirements Caroline Foulger (effective 12 May 2022) Director duties As a company incorporated under the laws of Bermuda, Hiscox complies with Bermuda Company Law and as such the UK Companies Act 2006 and associated reporting regulations do not apply. Although there is no prescription of statutory duties in Bermuda, Directors are bound by duciary duties to the Company and statutory duties of skill and care. This includes exercising care, diligence, and skill that a reasonably prudent person would be expected to exercise in a comparable circumstance. The Directors act in a way that they consider in good faith would be most likely to promote the success of the company for the benet of its members as a whole. Retired Non Executive Director Independent Non Executive Director Caroline Foulger (Aged 62) Appointed to the Board: January 2013 A resident of Bermuda, Caroline led PwC’s insurance and reinsurance practice in Bermuda until her retirement in 2012. With a strong background in accounting, she is a Fellow of the Institute of Chartered Accountants in England and Wales, a member of the Institute of Chartered Accountants of Bermuda and a member of the Institute of Directors. Caroline stepped down from the Hiscox Ltd Board at the 2022 AGM, following the conclusion of her nine-year term with the Company. 75Hiscox Ltd Report and Accounts 2022 Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chapter 1 2 Performance and purpose Board statistics Gender Female 4 Male 7 Age 46-55 3 56-65 4 66-75 4 Location USA 3 Bermuda 1 Europe 6 Asia 1 Tenure 0-3 years 3 3-6 years 4 6-8 years 3 8+ years 1 Board statistics Board diversity at 8 March 2023 Nationality British 5 Bermudian 1 American 3 Swiss 1 Australian 1 * Includes those Directors who hold a Permanent Residency Certicate. Read more about gender and ethnic diversity at Hiscox. 59 Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chapter 1 2 Performance and purpose 76 Hiscox Ltd Report and Accounts 2022 Paul Cooper Group Chief Financial Ofcer Joined Hiscox: May 2022 Relevant skills, experience and contribution s Considerable expertise of nancial and commercial management within a complex regulatory and compliance environment. s Qualied Chartered Accountant, with signicant experience of both the retail and Lloyd’s insurance markets. Paul joined Hiscox in 2022 as Group Chief Financial Ofcer to lead our team of 400 nance experts around the world and ensure robust nancial systems and continued capital efciency. With over 25 years of nancial services experience, Paul has held a number of senior roles, including most recently Interim Group Chief Financial Ofcer at M&G Plc and Chief Financial Ofcer for The Prudential Assurance Company. Paul is a qualied Chartered Accountant, having trained with PwC. Group Executive Committee Robert Dietrich Chief Executive Ofcer, Hiscox Europe Joined Hiscox: June 1997 Relevant skills, experience and contribution s In-depth knowledge of the European insurance market. s Signicant experience of bringing niche insurance products to market. Robert served as Managing Director for Hiscox Germany for many years, driving disciplined expansion and building it into the agship European business it is today. In 2021, he took on wider responsibility for Hiscox Europe, whose operations span eight countries, overseeing critical cross-country systems transformation and redening its long-term vision. Aki Hussain Group Chief Executive Ofcer Joined Hiscox: September 2016 Relevant skills, experience and contribution s Considerable experience of providing strategic, nancial and commercial management and in-depth knowledge of the regulatory and compliance environment. s Signicant experience of driving business change. Aki joined Hiscox in 2016 as Group Chief Financial Ofcer and became Group Chief Executive Ofcer in 2022. As such, Aki leads the Group Executive Committee in realising the strategy, delivering the business plan, and driving the Company through its next phase of growth. Prior to Hiscox, Aki held a number of senior roles across a range of sectors, including Chief Financial Ofcer of Prudential’s UK and Europe business, and Finance Director for Lloyds Banking Group’s consumer bank division. Aki is a Chartered Accountant, having trained with KPMG. Kevin Kerridge Chief Executive Ofcer, Hiscox USA Joined Hiscox: December 1996 Relevant skills, experience and contribution s Signicant expertise in, and at the forefront of, how digital is reshaping our industry landscape. s Multi-market, ground-up experience of building omni-channel retail businesses. Kevin has held a number of strategic planning, leadership and operational roles across the Group and was an early pioneer of our eCommerce approach, having set up and run our UK Direct business before relocating to establish our digital operations in the USA. He has led Hiscox USA since 2021, which now spans nine ofces and over 500 employees, overseeing product and service innovations and a programme of technology re-platforming that can support our signicant growth ambitions in the region. Kate Markham Chief Executive Ofcer, Hiscox London Market Joined Hiscox: June 2012 Relevant skills, experience and contribution s Strong experience of building customer-focused businesses. s Track record of establishing operational and digital infrastructures that support protable growth. Kate originally joined Hiscox to run our UK Direct business, and was promoted to Chief Executive Ofcer of Hiscox London Market in 2017. She leads our team of 300 London Market underwriters, analysts and support functions in the UK, Guernsey and the USA. In addition, Kate is the Group’s Executive Sponsor for diversity and inclusion. Hanna Kam Group Chief Risk Ofcer Joined Hiscox: February 2015 Relevant skills, experience and contribution s Qualied actuary with in-depth enterprise risk management and insurance expertise. s International property and casualty insurance industry experience gained within corporates and consultancies across the UK and Australia. Hanna leads our global team of risk and compliance experts, located in our key geographies and jurisdictions. She has Group-wide responsibility for Hiscox’s enterprise risk management and regulatory compliance, and manages our relationships with regulators. 77Hiscox Ltd Report and Accounts 2022 Chapter 3 72 Governance Group Executive Committee Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chapter 1 2 Performance and purpose Joanne Musselle Group Chief Underwriting Ofcer Joined Hiscox: April 2002 Relevant skills, experience and contribution s Considerable underwriting expertise, including experience of managing underwriting portfolios in our key markets. s Signicant knowledge of Hiscox, particularly Hiscox Retail, having worked for the Group for 19 years. Joanne joined Hiscox in 2002 and has held a number of roles across the Group, including Head of UK Claims, Chief Underwriting Ofcer for Hiscox UK & Ireland, and Chief Underwriting Ofcer for Hiscox Retail. Joanne also sits on the Board of a number of Hiscox subsidiary companies. Prior to Hiscox, Joanne spent almost ten years working in a variety of actuarial, pricing and reserving roles at Axa and Aviva in both the UK and Asian markets. Stéphane Flaquet Group Chief Operations and Technology Ofcer Joined Hiscox: March 2010 Relevant skills, experience and contribution s Strong nancial services background. s Sizable insurance industry experience gained within a range of European territories. Stéphane originally joined Hiscox as Chief Operating Ofcer for Europe, and has since held a number of other senior roles including Group Chief Information Ofcer, Chief Executive Ofcer of Hiscox Europe, Chief Transformation Ofcer and Interim Chief Executive Ofcer for Hiscox UK. In his new role, created during 2022, he oversees a number of critical Group functions including claims, technology, change, property services, procurement and marketing to ensure the continued effective and efcient delivery of core services while also driving process maturity and digital transformation. Nicola Grant Group Chief Human Resources Ofcer Joined Hiscox: September 2022 Relevant skills, experience and contribution s Deep expertise in developing and implementing HR strategies across multiple geographies. s Signicant experience of global performance and reward management, robust talent and succession planning and HR transformation. Nicola joined Hiscox in 2022 from ING Group where she held a number of senior HR positions. She leads our team of 95 HR professionals around the world and drives the Group’s people strategy as we focus on attracting, retaining and developing great people to support the next phase of the Group’s growth. This includes oversight of our HR policies and procedures, employee rewards and benets, recruitment, learning and development, and our approach to remuneration including executive compensation. Kathleen Reardon Chief Executive Ofcer, Hiscox Re & ILS Joined Hiscox: January 2021 Relevant skills, experience and contribution s Extensive experience of building reinsurance businesses throughout the cycle. s In-depth knowledge of the Bermuda reinsurance market. Kathleen leads our reinsurance and ILS business, which operates in London and Bermuda. She is responsible for ensuring the 110-strong team of underwriting, analytics and asset manager experts take advantage of changing market conditions and seize opportunities as they present themselves, as we continue to build both specialist reinsurance capability and our position as an expert alternative capital manager in the ILS space. Jon Dye Chief Executive Ofcer, Hiscox UK Joined Hiscox: September 2022 Relevant skills, experience and contribution s In-depth knowledge of the UK insurance market. s Track record of building sustainable, protable retail insurance businesses. Jon joined Hiscox in 2022 from Allianz UK, where he was Chief Executive Ofcer. He leads our UK retail insurance business, which spans eight ofces and over 800 employees and oversees the development of our established broker business, as well as our partnerships division and direct-to-consumer offerings. Jon is responsible for building on our long-term broker relationships, distinguished brand and deep expertise in underwriting and digital distribution with new capabilities as we continue to drive scale. 78 Hiscox Ltd Report and Accounts 2022 Q& A: with Jon Dye Chief Executive Ofcer, Hiscox UK Going places Hiscox UK is a well-established retail brand with a strong culture and considerable expertise, and its opportunities for growth are plentiful. > 79Hiscox Ltd Report and Accounts 2022 80 Hiscox Ltd Report and Accounts 2022 Q: You’ve had a long career in the insurance industry. What was it that drew you to it initially? A: I’m a law graduate, but I was always pretty certain that I didn’t want to join the legal profession. One of my lecturers said: “If you’re interested in the law and you want to change things, don’t be a lawyer, because their role is to follow their clients’ instructions. What you need to do is work for one of the compensators”. That means basically the insurance industry and the government. You hear lots of senior people say: “I fell into insurance. It was an accident”. I didn’t fall into insurance. I chose to come to insurance because I thought it was a fascinating and important business, which it is. Q: As well as several Chief Executive Ofcer roles, you’ve also had a recent stint as Chair of the Association of British Insurers (ABI). What did you take from that experience? A: I took a huge amount from that role and it was all in the timing. I was appointed in the summer of 2019, when none of us knew what was just around the corner. Covid was one of our industry’s biggest challenges for lots of reasons, and being the ABI Chair as the industry faced those challenges was such a valuable experience. Everybody had different views of thesameproblem and we really did have to work together to navigate through it. Q: What was your impression of Hiscox from the outside? A: My impression was that it had managed to build a clearly differentiated position in the market, which is a very difcult thing to do in insurance. There’s no IP in your product, because it’s there on sale, for all to see. To differentiate yourself is really quite hard, but I think Hiscox has done that spectacularly well. Good people, clever products, fantastic claims service – that’s what I perceived from the outside and that is exactly how it is. The culture runs through Hiscox in a way that is genuinely tangible. Every business says it’s customer-centric, every business says it’s entrepreneurial, but living up to that can be quite hard. If you haven’t got that culture, creating it is really difcult. And if you have got it, wow – that’s a great advantage! Q: What attracted you to this particular role? A: It’s an opportunity to grow not just the business, but also my own skills and experiences. We have an energetic new Group Chief Executive Ofcer who has big ambitions for us, who wants to see the UK retail operation move forward and is prepared to put money into that in terms of brand investment, change investment and broad support for what we’re trying to do. There’s no issue in terms of headroom. Are we banging our head on the maximum that you can achieve in terms of market share in key products? No. It’s all in our gift. That’s thegreat attraction. Through the channels we’re already working in, we can do things better and bigger than we do today. Q: Presumably, your relationship with brokers will be vital to that growth. How is that relationship changing as technology evolves? A: Technology is important. A lot of our change budget is pointed at digital initiatives with brokers. Brokers want us to be easy to deal with, and for smaller, more straightforward risks, that’s got to be digital. I think we’ve got a real opportunity here to steal a bit of a march on the market and move ourselves into a leading position if we invest intelligently. We’re on a journey there and I think quite an exciting one. But in other ways, working with brokers is no different to how it was in January 1989, when I started. People trade with people they know and trust. And that works all the way up and down the business. It’s a partnership and our success depends on our ability to build and leverage those relationships. One of the big advantages at Hiscox is that we’ve got a very at structure. Brokers can easily get to the decision-makers who are executing on the strategies that we’ve laid down. We’re actually looking to devolve even more decision-making to frontline specialists, allowing them to deliver at pace and in this market that’s quite unusual. Q: What do you think your priorities will be in the coming year? A: We’re known in the market for our strong underwriting talent and we’ll continue to strengthen and build this Jon Dye joined Hiscox in September 2022 after working in a number of senior roles within the insurance industry, most recently as Chief Executive Ofcer of Allianz UK. He also served as Chair of the ABI between 2019 and 2021. In his new post, he is responsible for leading the next phase of growth for Hiscox’s agship UK retail business. Q& A: with Jon Dye Chief Executive Ofcer, Hiscox UK 81Hiscox Ltd Report and Accounts 2022 core capability. The launch of our new Hiscox Underwriting Academy is going to be important as it will enhance our ability to grow and train our own talent. We’ll continue to recruit market experts where appropriate, particularly those with specialist expertise in protable growthsegments. We’ll also be investing in technology – that’s really important. As well as building our digital trading capability, we also need to simplify and digitise our own processes and automate simple tasks. And we’re investing in technology to improve the customer journey – we need to ensure our people have all the tools they need to exceed customer expectations. Q: How important is it to have a high-performing claims service? A: I spent the rst 18 years of my career working in claims, and for me it’s the moment of truth in our industry. People buy a promise, and they only know if it was a good purchase or a bad purchase when they need to make a claim. Seeing customers as people rather than numbers is absolutely vital and it’s something that Hiscox is famously brilliant at. Our claims service is genuinely a major differentiator – we continue to deliver a superb service, with really strong customer satisfaction. Q: What have you seen so far at Hiscox that makes you optimistic about the future? A: I think the fundamentals of the business are completely solid. The unique culture, the differentiated brand, the great people, the clever products, that’s all there. It’s actually been quite helpful to have someone come in from the outside and point out some of the things that we’re really good at, because there are lots and lots of them. So that’s what makes me most optimistic. The fundamentals of this business offer a brilliant foundation on which we can build a bigger and better business, and that’s what I intend to do. Q: Outside of work, what gives you energy? A: I play squash. I whack a little rubber ball around a room and burn a lot of energy in a short space of time. And it’s great. Hiscox is actually very good at encouraging people to take a break, do some exercise or just get out in the fresh air, so when I do get the opportunity to have a lunchtime game I nd that I come back to work feeling revived and ready to go again. The launch of our new Hiscox Underwriting Academy is going to be important as it will enhance our ability to grow and train our own talent. We’ll continue to recruit market experts where appropriate, particularly those with specialist expertise in protable growth segments.” We have an energetic new Group Chief Executive Ofcer who has big ambitions for us, who wants to see the UK retail operation move forward and is prepared to put money into that in terms of brand investment, change investment and broad support for what we’re trying to do. There’s no issue in terms of headroom.” Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chapter 1 2 Performance and purpose 82 Hiscox Ltd Report and Accounts 2022 Chairman’s letter to shareholders Dear Shareholder 2022 has been another year of focus when it comes to ensuring we have robust governance arrangements that are equipped to manage not only the risks we face but also the opportunities. The corporate governance report that follows will cover the detail of what this encompasses at Hiscox, but below are some key points from the year. Board changes Caroline Foulger stepped down from the Board in May, following the conclusion of her nine-year term. Pleasingly, we have experienced a smooth transition from Caroline to Donna DeMaio, who not only serves as an Independent Non Executive Director on the Board but also as Audit Committee Chair. I would like to thank Caroline for her counsel and constructive challenge over the years, which I have personally valued immensely and which the business has signicantly benetted from. In addition, Paul Cooper joined the Board as well as the Group Executive Committee in May, following his appointment as the Group’s Chief Financial Ofcer. Paul has over 25years of nancial services experience, including across both the retail and Lloyd’s insurance markets, and joined with strong knowledge of the Group – having served as Finance Director for Hiscox UK and Europe from 2006 to 2011 during a key phase of growth. We are benetting immensely from his experience and insights. As we announced with our 2022 results, I will be stepping down as Chairman during 2023 following 37 years of service to the Group, including ten years as Chairman, and the Board has commenced the search for my successor. An update on this search and on the succession process will be provided to the market in due course. Embedding the new Group Executive Committee During his rst year as Group Chief Executive Ofcer, Aki has established a Group Executive Committee with a combination of business unit and functional expertise, institutional knowledge and fresh thinking. This team of our most senior leaders has worked collaboratively and effectively over the course of the year to deliver strong progress against our 2022 business priorities, particularly when it comes to building connected teams with shared values and mindset, which is reected in our best employee engagement scores for ten years (see page 3). Listening to our people We are now in the fourth year of our Employee Engagement Network, led by Independent Non Executive Director Anne MacDonald in her capacity as Employee Liaison. This network comprises a representative group of colleagues, with diversity of geography, business area, age, race and tenure, and meets twice yearly, with anonymised insights reported back to the Board. These are rich discussions, which in 2022 have included rewards and benets, hybrid working, ESG, feedback for Aki in his new role, and what our people want to see from new Group Executive Committee members. As a result, the views of our people have constructively helped to shape Board discussions, for example around employee engagement as we review and rene our employee proposition, and our approach to hybrid working. Pragmatism in ESG The accountability and oversight structures we have established for ESG continue to drive healthy debate on our role in the transition to a net-zero economy (see page 60). We take a pragmatic approach to ESG, including climate-related issues, which can be seen not only in the progress we are making to reduce our exposure to some of the worst carbon emitters as we adapt to our ESG exclusions policy, but also in our work with clients to ensure an orderly transition. We also recognise the importance of comparable disclosures, which is why we continue to contribute to a range of independent indices, and this year we were particularly pleased to see our MSCI ESG rating upgraded from an A to an AA. Our second year of TCFD disclosure, in line with the FCA requirements, can be found on pages 60 to 67. I trust that the information set out in this report will give you a strong understanding of our corporate governance arrangements and assurance that Hiscox continues to be focused on the importance of maintaining a robust corporate governance framework. Robert Childs Chairman 83Hiscox Ltd Report and Accounts 2022 Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chapter 1 2 Performance and purpose Corporate governance Corporate governance framework The corporate governance framework throughout Hiscox supports the delivery of our values, culture, strategy and business objectives. The Board’s formal corporate governance framework includes the Board, the Hiscox Group subsidiaries and the Executive internal governance structures, which together ensure the governance requirements for the Group are robust and t for purpose. As a company listed on the London Stock Exchange, the UK Corporate Governance Code (the Code) is applicable to Hiscox, and an overview of the Company’s compliance with the Code is detailed on pages 88 to 93. The Board has a formal schedule of matters reserved for the Board’s determination that covers areas including: setting the Group’s purpose and strategic vision; monitoring performance of the delivery of the strategy; approving major investments, acquisitions and divestments; risk oversight and setting the Group’s risk appetite; and reviewing the Group’s governance. The Group governance manual (the Manual) details the wider corporate governance framework including the overall legal entity structures and relationship with the business units, the division of responsibilities between Group and principal subsidiary boards, Board process and procedures for issues such as Non Executive Director appointments, diversity requirements and Board evaluations, and the principles to be applied to the wider subsidiary management. The Manual is approved by the Board and regularly reviewed. The Company also benets from a strong governance framework at a subsidiary level. The Manual and the supporting subsidiary governance manuals ensure that the underlying processes throughout the subsidiary boards follow consistent and effective governance practices. The division of responsibility between the Board and the boards of the Group’s principal subsidiaries is understood throughout the Group and is visually represented in the Hiscox Group governance model (available at hiscoxgroup.com/ investors/corporate-governance). The model shows the relationship between the Board exercising strategic direction and oversight of the Hiscox Group, and the subsidiary boards’ delivery of their respective entity’s responsibilities. This is further detailed in explicit terms of reference and governance manuals for the principal subsidiaries – ensuring alignment to the overall Group approach to values, purpose, culture of risk awareness, ethical behaviour and Group controls. Informal interaction, information ows and collaboration between Group and the principal subsidiaries are also delivered by Board Non Executive and Executive Director representation on the boards of the principal insurance carrier entities. The Executive’s internal governance structures support decision-making at the Executive level between the Group Executive Committee, the business units and the functional departments. Membership of the Group Executive Committee was refreshed in January 2022 following a review of existing leadership structures by the incoming Group Chief Executive Ofcer, and the resulting Group Executive Committee members are detailed on pages 76 to 77. Supporting policies and processes The corporate governance framework complements the Company’s internal controls framework and its supporting framework of policies and processes. Key policies for the Group are published online and available to view at hiscoxgroup.com/about-hiscox/ group-policies-and-disclosures. The Board is satised that the internal control and risk management systems relating to the nancial reporting process are strong, with the Audit Committee and the Risk Committee forming the central points of review and challenge. Further detail can be found in the Audit Committee report on pages 99 to 101 and in the risk management section on pages 44 to 47. In addition, the Board and the Audit Committee – whose Chair also serves as the Group’s whistleblowing champion – have oversight of whistleblowing matters and receive reports arising from its operation. The Company’s whistleblowing policy is designed to ensure that the workforce feel empowered to raise concerns in condence and without fear of unfair treatment. The structures and processes in place allow for the proportionate and independent investigation of any such matters, and for appropriate follow-up action to be taken where necessary. Board composition The Board has responsibility for the overall leadership of the Group and its culture. The operations of the Board are underpinned by the collective experience of the Directors and the diverse skills which they bring. The Board comprises the Non Executive Chairman, three Executive Directors, and seven independent Non Executive Directors including a Senior Independent Director. Chapter 3 72 Governance Corporate governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chapter 1 2 Performance and purpose 84 Hiscox Ltd Report and Accounts 2022 Notable changes in the reporting period include the appointment of Paul Cooper as Group Chief Financial Ofcer, effective 9 May 2022, and Donna DeMaio’s appointment as Audit Committee Chair, following the retirement of Caroline Foulger at the AGM in 2022, after the conclusion of her nine-year term with the Company. Biographical details for each member ofthe Board are provided on pages 72 to 73. In accordance with the Company’s Bye-laws and the Code, all Directors will seek appointment or re-appointment (as applicable) at the 2023 Annual General Meeting. No issues have arisen that would prevent the Chairman from recommending the re-appointment of any individual Director. In addition, the Senior Independent Director has reviewed the position of the Chairman with the Non Executive Directors, and recommends the re-appointment of Robert Childs, conrming that the Chairman continues to show the independence of character and judgement necessary to chair the Board effectively. This will be the last time Robert will seek reappointment, having announced with the Group’s 2022 results that he will step down as Chairman during 2023 following 37 years of service to the Group, including ten years as Chairman. The search for a successor is underway and an update will be provided to the market in due course. The Board is satised that it has the appropriate balance of skills, experience, independence, and knowledge of the Company to enable it to discharge its duties and responsibilities effectively, and that no individual or group dominates the Board’s decision-making. Additional details on Board composition and succession planning can be found in the Nominations and Governance Committee report on pages 94 to 98. Board independence and Director duties The Nominations and Governance Committee reviews the independence of each Non Executive Director, taking into account, among other things, the circumstances set out in the Code that are likely to impair, or could appear to impair, their independence. The Committee remains of the view that the most important factor is the extent to which they are independent of mind. Each Director has undertaken to allocate sufcient time to the Group in order to discharge their responsibilities effectively. Each Non Executive Director’s letter of appointment outlines the commitments expected of them throughout the year and this is further detailed in the Manual. Executive Directors are prohibited from taking more than one additional non executive directorship in a FTSE 100 company. Each year, as part of the Director review process, the Directors are required to provide a complete list of all third-party relationships that they maintain. This is analysed to determine if there is any actual or potential conict of interest and that appropriate time continues to be available to devote to the Company. The Nominations and Governance Committee reviews the ndings and determines if there is any conict of interest. The Committee determined that there were no relationships which could cause an actual or potential conict. Additionally, there were no concerns regarding overboarding and all Directors had adequate time available to carry out their duties. Where Directors accepted additional Board positions during the year, these were reviewed as part of our corporate governance processes and were not deemed to be signicant to the extent that they would overburden that Director’s time. Approval occurs prior to a Director undertaking additional external appointments. Onboarding and Board training On joining the Board, all Non Executive Directors take part in a full, formal induction programme which is tailored to their specic requirements. More information on this can be found in the Nominations and Governance Committee report on pages 94 to 98. The Board also has an ongoing training programme with regular items on topical issues. In 2022, this included, among other things: sessions on ESG horizon scanning; the impact of IFRS 17; strategic planning; redening our employment proposition; workforce engagement; information security strategy; and control environment training. Items for training are identied in the Board, Committee and Director reviews, as well as through specic requirements and individual requests, and can be delivered via the frequent programme of Board informational sessions. Board structure and decision-making The Board operates within an established structure which ensures clear responsibilities at Board level, transparent, well-informed and balanced decision-making, and appropriate onward delegations to effectively deliver the Company’s purpose, values and strategy. The Board has delegated a number of its responsibilities to its Audit, Nominations 85Hiscox Ltd Report and Accounts 2022 Chapter 3 72 Governance Corporate governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chapter 1 2 Performance and purpose and Governance, Remuneration and Risk Committees. Each Board Committee operates within established written terms of reference and each committee Chair reports directly to the Board. The formal schedule of matters reserved for Board decision and the Committee terms of reference were reviewed in late 2022 as part of the annual review of terms of reference, and copies of each can be found at hiscoxgroup.com/investors/ corporate-governance. To ensure that the Board operates efciently, the role of the Chairman, Senior Independent Director and Chief Executive are distinct to demonstrate the segregation of responsibilities. Board cycle The Board receives appropriate and timely information to enable Directors to review business strategy, trading performance, business risks and opportunities. Executive Directors and senior management from the business are invited to present on key items, allowing the Board the opportunity to debate and challenge initiatives and proposals directly. The Board agenda is set by the Chairman following discussion with the Group Chief Executive Ofcer and Company Secretary, and taking into consideration feedback from the individual Directors. Board agendas focus on strategically important issues, key regulatory items and regular reports from key business areas. Board papers are circulated in advance of each meeting to ensure Directors have appropriate time to review them, and to seek clarication where necessary. The management reports follow a short standard format which aids discussion and understanding. The quality of Board papers is kept under regular review. At each meeting, the Board receives an update from the Committee Chairs to keep them abreast of the items discussed, the outcomes agreed, and to summarise recommendations for Board approval from the Committees. The scheduled meetings follow an agreed format; agendas are developed from the Board’s annual plan of business, with exibility built in to ensure the agendas can accommodate relevant upcoming issues. Each quarterly cycle typically covers a series of decisions, discussions and regulatory items either at the Board, during Committee discussions, or during informal informational sessions, depending on the nature of the matter. Items for discussion may be identied from actions from previous meetings, issues escalated from management, items requested either formally or informally by Non Executive Directors, ongoing regulatory topics throughout the Group, and horizon scanning including review of the competitive landscape. Agendas are built to ensure that the most appropriate method of progressing an item is utilised. The Chairman and Non Executive Directors usually meet at the start or end of each Board meeting without the Executive Directors, creating an opportunity for Non Executive Directors to raise any issues privately. Owing to this system, the Group has an effective Board which supports a culture of accountability, transparency and openness. Executive and Non Executive Directors continue to work well together as a unitary Board and debate issues freely. The Board culture is congenial; however, both Non Executive Directors and Executive Directors continually challenge each other in order to deliver our shared aim. In the context of unitary Boards, Non Executive Directors provide Executive Directors with support and guidance, not just challenge, and our Non Executive Directors are close enough to the business to do this. Board attendance in 2022 In line with the agreed meeting schedule, the Board held four comprehensive meetings in 2022 (these meetings comprise meetings of the Board and of each of the Committees of the Board). In keeping with the practices developed during the early stages of the pandemic, there were an additional seven informational calls between Board meetings. These informational calls provided an opportunity to ensure the Board was kept informed of any business developments and allowed the Directors to monitor exposures, emerging issues and opportunities. The Company’s Bye-laws prohibit any Director who is in the UK or the USA from counting towards the quorum necessary for the transaction of business at a Board meeting. This restricts the ability of the Company’s Directors based in the UK or USA to participate in Board meetings by telephone or other electronic means. All Directors were able to full their duciary responsibilities during 2022 and attended all Board and Committee meetings that they were eligible to attend (that is, those Board and Committee meetings that they were not precluded from attending as a result of the Company’s Bye-laws). With respect to the four comprehensive Board meetings in 2022, the Directors’ attendance (and the number of meetings that they were eligible to attend) was as follows: Robert Childs, Michael Goodwin, Thomas Huerlimann, Colin Keogh, Anne MacDonald, Costas Chapter 3 72 Governance Corporate governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chapter 1 2 Performance and purpose 86 Hiscox Ltd Report and Accounts 2022 Miranthis, Lynn Pike, Joanne Musselle, Aki Hussain (4/4); Paul Cooper (3/3); and Donna DeMaio (2/3). In November 2022, Donna DeMaio was involved in a medical emergency which prevented her from attending the November Board meeting. The Deputy Chair of the Audit Committee, Thomas Huerlimann, fullled her responsibilities for the meeting. There were also four meetings of each of the Committees of the Board during 2022. All of the Company’s Independent Non Executive Directors are members of each of the Audit Committee, Nominations and Governance Committee, Remuneration Committee, Risk Committee and Investment Committee and their attendance (and the number of meetings that they were eligible to attend) was as follows: Michael Goodwin, Thomas Huerlimann, Colin Keogh, Anne MacDonald, Costas Miranthis, Lynn Pike (4/4); and Donna DeMaio (2/3, for the same reason as described above). Robert Childs is a member of the Nominations and Governance Committee, Risk Committee and Investment Committee and he attended all four of the meetings that he was eligible to attend. Aki Hussain and Joanne Musselle are members of the Investment Committee and attended all four meetings. Paul Cooper is also a member of the Investment Committee and attended the three meetings he was eligible to attend. Outside of the formal Board and Committee meetings and informational calls, Non Executive Directors have unfettered access to employees at all levels of the business, regularly liaise with management on activities aligned to their key skills, and attend appropriate management strategy and training events. They also have the opportunity to attend briengs with Group Executive Committee members and senior management, to understand key issues and conduct deep dives on specialist subjects. Board activity in 2022 Board activity in 2022 was suitably focused to ensure it covered the appropriate strategy, performance and governance items and considered the needs and concerns of our key stakeholders. This included: • strategy and business performance, including approval of the 2023 business plan, the agreement of business priorities for the year ahead, oversight of capital management measures taken (including legacy portfolio transactions and debt renancing), embedding the Group’s strategic evolution, and further optimising operational effectiveness; • culture and engagement, including reviewing the annual employee engagement survey, oversight of the employee proposition work done to date, and gaining new insights from the Employee Engagement Network facilitated by the Board’s Employee Liaison; • governance, including updates on key underwriting exposures, and approval of the updated risk limits framework; • oversight of all key risks, compliance, internal controls and governance matters, as outlined on pages 44 to 46, 94 to 98 and 99 to 101. More information on Board activities is covered as part of the annual Board evaluation process outlined on pages 97 to 98. Board engagement with stakeholders A key element of the corporate governance framework is open and transparent communication with stakeholders at all levels including Board level. As such, the Board regularly discusses stakeholder matters including shareholder matters, employee engagement, customers, and the Group’s impact on, and relationship with, wider society. The Board is kept abreast of stakeholder feedback and issues through reports from a variety of sources, including the Chairman, Group Chief Executive Ofcer, Group Chief Financial Ofcer, Employee Liaison, senior management and external consultants. This feedback loop is complemented by the regular dialogue that the Board maintains with the Group’s key stakeholders, with the support of Executives and senior management. The chair of each Committee of the Board is available for engagement with shareholders when required and an example of this during 2022, in relation to our remuneration policy review, can be found on page 132. More information on how the Board engages with key stakeholders can be found on pages 48 to 49. Board evaluation 2022 The Board encourages a culture of continuous improvement, and an important part of this is the annual review of the Board, its Committees and each Director. The Board evaluation in 2022 was internally facilitated, the details of which can be found in the Nominations and Governance Committee report on pages 94 to 98. Board remuneration The remuneration of Independent Non Executive Directors is determined by the Nominations and Governance Committee and is regularly benchmarked to ensure it reects the time commitment and responsibilities of each role; there are no performance-related elements. The Chairman’s remuneration is determined pursuant to the remuneration policy. More information on Board remuneration can be found in the remuneration section on pages 106 to 143. 87Hiscox Ltd Report and Accounts 2022 Chapter 3 72 Governance Corporate governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chapter 1 2 Performance and purpose The role of the Board The Board as a whole is collectively responsible for the success of Hiscox Ltd and the Group. Its duties are to: • set the Group’s strategic direction, purpose and values and align these with its culture; • oversee competent and prudent management of internal control, corporate governance and risk management; • determine the sufciency of capital in light of the Group’s risk prole and business plans; • approve the business plans and budgets. This structure is supported by the Group Executive Committee, Investment Committee and a number of other management committees. Certain administrative matters have been delegated to a committee comprising two Directors and the Company Secretary. Audit Committee Nominations and Governance Committee Remuneration Committee Risk Committee • Advises the Board on nancial reporting. • Oversees the relationship with internal and external audit. • Oversees internal controls including reserving and claims. The Audit Committee report can be found on pages 99 to 101. • Recommends Board appointments. • Succession planning. • Ensures an appropriate mix of skills and experience on the Board. • Promotes diversity. • Manages any potential conicts of interests. The Nominations and Governance Committee report can be found on pages 94 to 98. • Establishes remuneration policy. • Oversees alignment of rewards, incentives and culture. • Sets Chairman, Executive Director and senior management remuneration. • Oversees workforce remuneration-related policies and practices across the Group. The remuneration report can be found on pages 112 to 121. • Advises the Board on the Group’s overall risk appetite, tolerance and strategy. • Provides advice, oversight and challenge to embed and maintain a supportive risk culture throughout the Group. More information on risk management can be found on pages 8 to 11 and 44 to 47. To ensure that the Board operates efciently, each Director has distinct role responsibilities. Chairman Senior Independent Director (SID) Chief Executive Independent Non Executive Directors • Leadership of the Board. • Ensuring effective relationships exist between the Non Executive and Executive Directors. • Ensuring that the views of all stakeholders are understood and considered appropriately in Board discussions. • Overseeing the annual performance evaluation and identifying any action required. • Leading initiatives to assess the culture of the Company and ensure that the Board leads by example. • Advisor to the Chairman. • Leading the Chairman’s performance evaluation. • Serving as an intermediary to other Directors when necessary. • Being available to shareholders and other stakeholders if they have any concerns which are unable to be resolved through normal channels, or if contact through these channels is deemed inappropriate. • Proposing and delivering the strategy as set by the Board. • Facilitating an effective link between the business and the Board in support of effective communication. • Leading the Group Executive Committee, which delivers operational and nancial performance. • Representing Hiscox internally and externally to stakeholders, including shareholders, employees, government and regulators, suppliers and contractors. • Active participation in Board decision-making. • Advising on key strategic matters. • Critiquing and challenging proposals and activities, and approving plans where appropriate. Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chapter 1 2 Performance and purpose 88 Hiscox Ltd Report and Accounts 2022 Compliance with the UK Corporate Governance Code 2018 the results of which were positive. This will also be a focus again in the 2023 externally facilitated Board evaluation. A similarly positive result was found in the 2021 and 2022 Board evaluations as detailed on pages 97 to 98. The Board therefore retains complete condence in the Chair’s ability to act independently, and unanimously supports his re-election at the AGM. This will be the last time the Chair will seek reappointment, having announced with the Group’s 2022 results that he will step down as Chairman during 2023, following 37 years of service to the Group including ten years as Chairman. The search for a successor is underway and an update will be provided to the market in due course. The Company complies with all of the provisions in Section 3 (audit, risk and internal control) except for part of Provision 25. The role and functions of the Audit Committee are set out in Section 3 of the Code. This includes certain risk-related responsibilities. These risk-related responsibilities are undertaken by the separate Risk Committee at Hiscox. The composition of the Risk Committee does not comply with Provision 25 of the Code, which states that the Audit Committee should comprise Independent Non Executive Directors and that the Chair should not be a member of the Audit Committee. This is because the Chairman sits on the Risk Committee. However, the Board considers the Chairman’s expertise in underwriting and risk management remains a valuable asset and the Chairman is a valuable member of this Committee because of the insight he brings, which the Board considers to be benecial to that Committee. experience and expertise in underwriting and risk management remain a valuable asset in the performance of its functions. In 2019, following the introduction of the new provision of the Code, a more robust annual process was introduced which allows the question of the Chairman’s independence and Board tenure to be discussed in a specic session with the Non Executive Directors (without the Chairman being present). This process is led by the Senior Independent Director. The meeting took place in November 2022 and, having also considered the views of the Executive Directors, the meeting determined that the Directors continue to highly value the Chair’s skills and experience, and that he demonstrates independence, constructive challenge and engagement in the Board, as well as valuable guidance to senior management. The Board is therefore satised that the Chair continues to show the independence of character and judgement necessary to chair the Board effectively in this, his nal year as Chair. Separately, there are a number of further measures to ensure the robustness of these arrangements including: a strong Senior Independent Director in place; an annual review of independence of mind as part of the effectiveness review, and oversight of this at the Nominations and Governance Committee; the Chair is not a member of the Remuneration Committee or the Audit Committee; and a majority of Board Directors are independent Directors. A key focus of the 2020 externally facilitated Board evaluation was an assessment of the independence of the Board, the role of the Chairman and the robustness of the Non Executive Director succession plan; As a company listed on the London Stock Exchange, the UK Corporate Governance Code (the Code) is applicable to Hiscox. The Board is pleased to report that the Company has applied the principles and complied with all its provisions, except in relation to Provision 9 on Chair independence; Provision 19 on Chair tenure (as explained below) and part of Provision 25 regarding the Chairman’s membership of the Risk Committee. The corporate governance statement (pages 83 to 87), the remuneration report (pages 112 to 131) and the Directors’ report (pages 148 to 151), together with the cross references to other relevant sections of the Annual Report and Accounts, explain the main aspects of the Company’s corporate governance framework and seek to give a greater understanding as to how the Company has applied the principles and reported against the provisions of the Code. The Code itself can be found at frc.org.uk. Chair independence and tenure The Company complied with all of the provisions of Section 2 with the exception of Provision 9 and 19 regarding Chair independence and tenure respectively. As previously disclosed, the Chair, Robert Childs, was not deemed to be independent upon his appointment as Chairman in 2013. The Chairman has been in post since 2013 and as announced with the Group’s 2022 results, will step down as Chair during 2023. Prior to 2013, the Chair served as an Executive Director (Chief Underwriting Ofcer for the Group) and, as such at the time of appointment major shareholders were consulted ahead of the Chair appointment and the Board set out its reasons for his appointment. The Board continues to believe that the Chairman’s 89Hiscox Ltd Report and Accounts 2022 Chapter 3 72 Governance Compliance with the UK Corporate Governance Code 2018 Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chapter 1 2 Performance and purpose Requirements Operation and practices Additional detail on provisions: Compliance 1 Section 1 of the Code: Board leadership and Company purpose A: Board’s role Code: A successful company is led by an effective and entrepreneurial board, whose role is to promote the long-term sustainable success of the company, generating value for shareholders and contributing to wider society. Hiscox: The Board is collectively responsible for the stewardship and long-term success of the Company. There is a robust decision-making process in place with constructive challenge and debate. Pages 24 to 37 demonstrate the Company’s strong performance and position. In the corporate governance overview on pages 83 to 87, we detail the governance arrangements in place which contribute to the delivery of our strategy. Provision 1: pages 44 to 47 (risk management), pages 6 to 7 (business model). Provision 2: page 86 (Board activity), pages 106 to 143 (chapter 4, remuneration). Provision 3: pages 48 to 49 (shareholder engagement). Provision 4: No AGM votes below 80%. Provision 5: pages 48 to 49 (stakeholder engagement), page 86 (Board activity). Provision 6: page 83 (corporate governance framework). Provision 7: pages 83 to 86 (Non Executive Director time, corporate governance framework). Provision 8: Group governance manual and Director appointment letters. The Company applied all of the principles and complied with the provisions of Section 1. Provision 5 refers to Section 172 of the UK Companies Act which is not applicable to Hiscox as a Bermuda- incorporated company. However, the material provisions of Section 172 of the UK Companies Act are substantively covered by the Bermuda Companies Act, which is the applicable legislation that the Company is required to comply with under Bermuda law. Compliance against Bermudian Director duties is detailed on page 74. B: Purpose and culture Code: The board should establish the company’s purpose, values and strategy, and satisfy itself that these and its culture are aligned. All directors must act with integrity, lead by example and promote the desired culture. Hiscox: Having a clear purpose and strong set of values has always been important at Hiscox as they act as a culture barometer by which the Board and wider workforce can hold each other to account (see pages 2 to 3). Procedures for regulation of Board conduct are detailed in the Group governance manual and individual appointment letters, and is overseen by the Chair of the Board. C: Resources and controls Code: The board should ensure that the necessary resources are in place for the company to meet its objectives and measure performance against them. The board should also establish a framework of prudent and effective controls, which enable risk to be assessed and managed. Hiscox: One of the key roles of the Board is to oversee the delivery of strategy and annual operating plans, holding management to account on their delivery of those plans. This is assisted by a robust internal control and risk management framework (see pages 44 to 46). The Board and its Committees have unfettered access to the resources they deem necessary to full their obligations. D: Stakeholder engagement Code: In order for the company to meet its responsibilities to shareholders and stakeholders, the board should ensure effective engagement with, and encourage participation from, these parties. Hiscox: The Board regularly considers the Group’s relationship with various stakeholder groups including shareholder matters, employee engagement, customers, and the Group’s impact on, and relationship with, wider society, examples of which can be found on pages 48 to 49. The Board continues to engage with the workforce through the pre-existing infrastructure and via the employee engagement network. This ensures Hiscox is motivating and engaging employees in an effective way. The Employee Liaison is responsible for providing a summary of ndings at Board meetings. E: Workforce engagement Code: The board should ensure that workforce policies and practices are consistent with the company’s values and support its long-term sustainable success. The workforce should be able to raise any matters of concern. Hiscox: Comprehensive and robust policies and procedures are in place. Having a supportive and inclusive culture is important to us and we track how employees feel about working at Hiscox through our annual global employee engagement survey. More information on our 2022 results can be found on page 3. The Board also engages with the workforce through its established employee engagement network, which supports the pre-existing engagement infrastructure. 90 Hiscox Ltd Report and Accounts 2022 Requirements Operation and practices Additional detail on provisions: Compliance 2 Section 2 of the Code: Division of responsibilities F: Role of the Chair Code: The chair leads the board and is responsible for its overall effectiveness in directing the company. They should demonstrate objective judgement throughout their tenure and promote a culture of openness and debate. In addition, the chair facilitates constructive board relations and the effective contribution of all non-executive directors, and ensures that directors receive accurate, timely and clear information. Hiscox: The Chair is responsible for the leadership and overall effectiveness of the Board. The Chair drives a boardroom culture which encourages openness and debate and ensures constructive relations between Executive and Non Executive Directors, see Board cycle on page 85. The Chair, with the support of the General Counsel and Company Secretary, delivers high-quality information to the Board to enable a strong basis for decision-making. Pages 83 to 86 detail the corporate governance structures in place. Provision 9: page 88 (Chair independence and tenure), page 87 (CEO and Chair separate roles). Provision 10: page 72 to 73 (Board of Directors). Provision 11: page 72 to 73 (Board composition). Provision 12: page 72 to 73 (Board composition), page 97 to 98 (Board evaluation). Provision 13: page 85 (Board cycle). Provision 14: page 87 (structure of Board decision-making), page 85 to 86 (Board attendance in 2022). Provisions 15 and 16: Group governance manual and Director appointment letters. The Company applied all of the principles and complied with the provisions of Section 2 except for Chair independence within Provision 9 (see page 88). G: Composition of the Board Code: The board should include an appropriate combination of executive and non-executive (and, in particular, independent non-executive) directors, such that no one individual or small group of individuals dominates the board’s decision-making. There should be a clear division of responsibilities between the leadership of the board and the executive leadership of the company’s business. Hiscox: There is a clear division of responsibilities between the Chair, Chief Executive Ofcer and Senior Independent Director (see page 87). No individual or small group has unfettered powers of decision. The Board has a majority of independent Directors. H: Role of Non Executive Directors Code: Non-executive directors should have sufcient time to meet their board responsibilities. They should provide constructive challenge, strategic guidance, offer specialist advice and hold management to account. Hiscox: The Group governance manual and the Directors’ letters of appointment detail the requirements for the Non Executive Directors regarding their role and time expectations. These factors are subject to ongoing review, which is overseen by the Chair of the Board, and is formally reviewed in the annual Director reviews conducted by the Nominations and Governance Committee (see page 94). The duties of the Board are detailed in our Matters reserved for the Board policy, which aligns to the requirements of this principle and includes the key role of appointing and removing Executive Directors. The Matters reserved for the Board is available in the Board terms of reference at hiscoxgroup.com/investors/ corporate-governance. I: Role of the Company Secretary Code: The board, supported by the company secretary, should ensure that it has the policies, processes, information, time and resources it needs in order to function effectively and efciently. Hiscox: The Group General Counsel and Company Secretary acts as a trusted advisor to the Board and its Committees, and ensures there are appropriate interactions between senior management and the Non Executive Directors. He is responsible for advising the Board on all governance matters and all Directors have access to him for advice. Chapter 3 72 Governance Compliance with the UK Corporate Governance Code 2018 Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chapter 1 2 Performance and purpose 91Hiscox Ltd Report and Accounts 2022 Requirements Operation and practices Additional detail on provisions: Compliance 3 Section 3 of the Code: Composition, succession and evaluation J: Appointment to the Board and succession planning Code: Appointments to the board should be subject to a formal, rigorous and transparent procedure, and an effective succession plan should be maintained for board and senior management. Both appointments and succession plans should be based on merit and objective criteria and, within this context, should promote diversity of gender, social and ethnic backgrounds, cognitive and personal strengths. Hiscox: The Group governance manual details the commitment to a formal, rigorous and transparent procedure for appointments to the Board and effective succession planning for Board and senior management, both of which are based on merit and promote diversity. This is also detailed within the Matters reserved for the Board as part of the Board terms of reference and the terms of reference of the Nominations and Governance Committee, available at hiscoxgroup.com/investors/corporate-governance. The Board diversity and inclusion policy is detailed on pages 95 to 97. It details the parameters for appointments and succession planning, as well as oversight of Board and workforce diversity and inclusion policies and programmes. The Nominations and Governance Committee leads on the delivery of this principle on behalf of the Board as detailed on pages 94 to 98. Provision 17: pages 94 to 98 (key responsibilities and membership, Nominations and Governance Committee report). Provision 18: pages 72 to 73 (Board composition). Provision 19: See explanation above (Chair independence and tenure). Provision 20: pages 94 to 98 (talent review and Board composition and succession, Nominations and Governance Committee report). Provisions 21 and 22: page 94 to 98 (Board evaluation, Nominations and Governance Committee report). Provision 23: pages 94 to 98 (Nominations and Governance Committee report). The Company applied all of the principles and complied with the provisions of Section 3 except for Chair tenure within Provision 19 (see page 88). K: Skills, experience and knowledge of the Board Code: The board and its committees should have a combination of skills, experience and knowledge. Consideration should be given to the length of service of the board as a whole and membership regularly refreshed. Hiscox: The current composition of the Board is set out on pages 72 to 73 and is considered to be an appropriate size for the business, with the right balance of Executive and Non Executive Directors with a wide range of skills and experience that contribute to the Board’s performance. Length of service is considered as part of the succession planning process and this is delivered by the Nominations and Governance Committee on behalf of the Board as detailed on pages 94 to 98. L: Board evaluation Code: Annual evaluation of the board should consider its composition, diversity and how effectively members work together to achieve objectives. Individual evaluation should demonstrate whether each director continues to contribute effectively. Hiscox: The Board, Committee and Director evaluation process is a robust annual process which ensures that a thorough evaluation is completed each year. This internal evaluation process is supported by external evaluations, which are completed every three years, with the next external review scheduled for 2023 (see pages 97 to 98). Chapter 3 72 Governance Compliance with the UK Corporate Governance Code 2018 Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chapter 1 2 Performance and purpose 92 Hiscox Ltd Report and Accounts 2022 Requirements Operation and practices Additional detail on provisions: Compliance 4 Section 4 of the Code: Audit, risk and internal control M: Internal and external audit Code: The board should establish formal and transparent policies and procedures to ensure the independence and effectiveness of internal and external audit functions and satisfy itself on the integrity of nancial and narrative statements. Hiscox: The Audit Committee oversees the relationships with the internal and external audit functions ensuring their independence and effectiveness. The Committee also has oversight of the relationship with the actuarial function. The three parties work together to provide assurances to the Audit Committee and Board on the integrity of the nancial statements, with external audit also providing assurances in relation to the narrative statements. The Audit Committee report for 2022 can be found on pages 99 to 101. The Directors’ responsibilities statement, going concern and viability statements are set out on pages 148 to 151. Provisions 24 and 26: pages 99 to 101 (Audit Committee report). Provision 25: Audit Committee terms of reference are available at hiscoxgroup.com/ investors/corporate- governance. Risk Committee terms of reference are also available. The Chair of the Board sits on the Risk Committee as the Board considers that this brings value to that Committee. Provisions 27, 30 and 31: pages 148 to 150 (going concern and viability statements, Directors’ report). Provisions 28, 29 and 31: pages 44 to 47 (risk management). The Company applied all of the principles and complied with the provisions of Section 4, except for part of Provision 25 as the Risk Committee membership includes the Board Chairman. N: Fair, balanced and understandable assessment Code: The board should present a fair, balanced and understandable assessment of the company’s position and prospects. Hiscox: The Board is responsible for the preparation of the Annual Report and Accounts and for stating whether it considers the Annual Report and Accounts, taken as a whole, to be fair, balanced and understandable, and provides information necessary for shareholders to assess the Company’s position, performance, business model and strategy. The Audit Committee details how this is achieved on pages 99 to 101. O: Risk management and internal control framework Code: The board should establish procedures to manage risk, oversee the internal control framework, and determine the nature and extent of the principal risks the company is willing to take in order to achieve its long-term strategic objectives. Hiscox: The Board is ultimately responsible for our risk management and internal controls, and for ensuring that the systems in place are robust and take into account the principal risks (referred to in this document as key risks) and the emerging risks faced by the Company. An overview of risk management can be found on pages 44 to 47. The Risk Committee leads detailed discussions on the principal and emerging risks of the Company on behalf of the Board, and recommends to the Board the appropriate risk management framework including risk limits, appetite and tolerances. The Risk Committee also oversees the independence and effectiveness of the risk and compliance functions. Chapter 3 72 Governance Compliance with the UK Corporate Governance Code 2018 Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chapter 1 2 Performance and purpose 93Hiscox Ltd Report and Accounts 2022 Requirements Operation and practices Additional detail on provisions: Compliance 5 Section 5 of the Code: Remuneration P: Remuneration policies and practices Code: Remuneration policies and practices should be designed to support strategy and promote long-term sustainable success. Executive remuneration should be aligned to company purpose and values, and be clearly linked to the successful delivery of the company’s long-term strategy. Hiscox: Our remuneration policy and practices are developed by the Remuneration Committee in consultation with our shareholders. They are designed to support the Company’s strategic aims, promote the long-term sustainable success of the Company, and attract and retain talent, while also being aligned with the Company’s purpose, values, culture and vision (see pages 2 to 3). Provisions 32 and 33: pages 106 to 109 (annual statement from the Chair of the Remuneration Committee). Provision 34: pages 119 and 125 (Non Executive Director fees, Chair remuneration). Provisions 35: page 126 (consultants are highlighted in chapter 4: remuneration). Provisions 36, 37, 38, 39: pages 132 to 143 (remuneration policy). Provisions 40 and 41: pages 106 to 143 (chapter 4: remuneration). The Company applied all of the principles and complied with the provisions of Section 5. Q: Executive remuneration Code: A formal and transparent procedure for developing policy on executive remuneration and determining director and senior management remuneration should be established. No director should be involved in deciding their own remuneration outcome. Hiscox: The Remuneration Committee is responsible for setting the remuneration for all Executive Directors and senior management. The remuneration report contains details of the procedures that have been established for developing the Company’s policy on Executive pay and determining Director and senior management remuneration outcomes. No Director is involved in deciding their own remuneration outcome. The Remuneration Committee receives information on broader workforce remuneration policies and practices during the year which informs its consideration of the policy (see page 128). The remuneration policy was reviewed during 2022 and is being put to a shareholder vote at the May 2023 AGM. Changes are being proposed to reward the delivery of Hiscox’s wider strategy by introducing a scorecard approach to the short- and long-term incentives. Bonus deferral and post-employment shareholding guidelines are being further aligned with market practice and the circumstances that may trigger use of malus and clawback have been extended. Major shareholders’ views on proposed changes to the policy were sought and they have indicated broad support for the approach. The Employee Liaison facilitates discussion with respect to the content of the remuneration policy and how this aligns to wider Company pay policy, and shares feedback on this with the Board. R: Remuneration outcomes and independent judgement Code: Directors should exercise independent judgement and discretion when authorising remuneration outcomes, taking account of company and individual performance, and wider circumstances. Hiscox: The Remuneration Committee leads on this area of work on behalf of the Board. Details of the composition and the work of the Remuneration Committee are detailed on pages 106 to 143. The Remuneration Committee comprises Independent Non Executive Directors only. The remuneration of Independent Non Executive Directors is determined by the Nominations and Governance Committee and is regularly benchmarked to ensure it reects the time commitment and responsibilities of each role; there are no performance-related elements. The Board Chair’s remuneration is determined in line with the remuneration policy and reviewed by the Remuneration Committee. The Remuneration Committee terms of reference can be found at hiscoxgroup.com/remuneration-committee-tor. A full copy of the Corporate Governance Code 2018 can be found at frc.org.uk. Chapter 3 72 Governance Compliance with the UK Corporate Governance Code 2018 Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chapter 1 2 Performance and purpose 94 Hiscox Ltd Report and Accounts 2022 Nominations and Governance Committee report Succession was a key area of focus for the Committee again in 2022, at both Executive Director level and in relation to key leadership positions. The positive effects of new talent and fresh perspectives are already being felt.” Robert Childs Chair of the Nominations and Governance Committee Key responsibilities and membership The Nominations and Governance Committee (the Committee) leads in the delivery of formal, rigorous and transparent procedures on appointments and succession, ensuring the development of a diverse pipeline of Board members and senior managers. This includes an annual review of succession plans for Executives and Non Executives, a process which is guided by the appointment and succession principles set out in the Group governance manual for Non Executive Directors and by our Group HR policies for Executive Directors and senior management. The Committee also reviews the Board evaluation process, Company strategy relating to diversity, equity and inclusion, and the gender balance of both the Board and senior management. In addition, the Committee carries out several other Group activities, including a review of intragroup conictsof interest and the approval ofGroup policies. The Committee is comprised of eight members, of which seven are Independent Non Executive Directors. The Chair of the Board is the Chair of the Nominations and Governance Committee; the Senior Independent Director leads on matters relating to the Chair. The Committee’s terms of reference are reviewed and approved annually and are available on the Company’s website at hiscoxgroup. com/investors/corporate-governance. Key activities of the Committee: The Committee’s key priorities in 2022 were as follows. • Board Director succession, which in 2022 included ensuring a smooth transition to a new Group Chief Executive Ofcer, Group Chief Financial Ofcer and Audit Committee Chair. • Review of the Board evaluation outcomes. • Ongoing diversity monitoring of the Board and senior management. • Consideration around Chairman and Director succession planning. Talent reviews The Committee leads on Executive succession planning via an established and robust talent review process. As required, the Committee reviews key talent plans throughout the Group. The Group review focuses on the Group Executive Committee, and their direct reports, and the Company Secretary. The outputs of the talent review process contribute to senior management performance development plans and include relevant diversity actions. This process is replicated at a business unit level to ensure a sufcient pipeline of talent in each area. Talent plans are also reviewed when vacancies arise. Board composition and succession As part of the annual Board succession planning process, the Committee reviewed the composition of the Board in 2022. This included a skills and experience review – encompassing independence, length of service, the balance of skills and experience, diversity, and the capacity required to oversee the delivery of the Company’s strategy – and Board succession planning on an immediate and longer-term basis for the Chair and all members of the Board. The review focused on Non Executive succession was aligned to the talent reviews for the Executive Directors. Following these formal reviews, the Board remains condent that the current skills and Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chapter 1 2 Performance and purpose 95Hiscox Ltd Report and Accounts 2022 expertise are in place to deliver value to the Company and its shareholders. This formal annual process is augmented by ongoing open dialogue between the Non Executive Directors on succession and the skills required to deliver the strategy. Pages 72 to 73 demonstrate the nature and breadth of each Director’s relevant skills and experience. Additionally, all Directors have demonstrated that they have adequate capacity to full their duties. As part of the discussions on the requirements of new Directors, the Committee determined that the Company has a strong Board which is sufciently capable to meet the demands of the Group and future strategy. Diversity, equity and inclusion (DEI) DEI has been a strategic priority for a number of years and remains critical to our development as a sustainable and resilient organisation. Hiscox operates in a global market and the success of our business is dependent on our people, which is why we want to build a workforce that reects the make-up of our customers, the communities we serve, and the communities in which we live and work, ensuring that we have employees with different backgrounds, perspectives and experiences, with a working environment where all our people can thrive. Our belief is that diverse teams and an equitable and inclusive workplace are critical to resilience as well as sustainable growth, which in turn makes us a stronger partner for our customers. We believe it is important that the name of the function appropriately reects the intent and work being done, which is why in 2022 we evolved from ‘diversity and inclusion’ to ‘diversity, equity and inclusion’. We have a Global Head of DEI and a DEI Executive Sponsor for the Group, who together drive our DEI strategy and progress. This includes our DEI approach to building culture, the alignment of policies and processes with inclusion principles, building community and belonging via employee networks, and ensuring alignment to credible external DEI commitments. In addition, each business unit Chief Executive Ofcer and functional leader has established a DEI action plan which is aligned to our Board-approved global DEI strategy and includes aspects such as recruitment, career development, and DEI skills and capabilities development. These plans are monitored centrally and also via specic local reports to subsidiary boards. This approach is supported by an annual report on DEI which this Committee receives. DEI policies, progress and disclosure After we reviewed and updated our Board diversity policy in 2021, we built upon this in 2022 by refreshing our Group DEI policy which applies to our entire workforce to more clearly articulate DEI governance, refresh our principles and approach to DEI, and align with the Board DEI policy and other documentation. This iteration more appropriately reects our intent and strategy and better meets the expectations of our industry and marketplace. The Hiscox Ltd Board DEI policy and Group DEI policy are publicly available on our website at hiscoxgroup.com/ about-hiscox/group-policies-and- disclosures. Both reect the ethos of the Company in advocating that opportunity should be limited only by an individual’s ability and drive. The specic objectives of the Hiscox Ltd Board DEI policy, as well as how they have been implemented and the results during the reporting period, are set out on page 96. We have also fullled our UK obligations to report our gender pay gap ratios with respect to our UK subsidiaries, and published our sixth annual gender pay report during the year. This report sets out in detail the gender-related programmes and initiatives we pursued during 2022 and can be viewed at hiscoxgroup.com/gender-pay- report-2022. We voluntarily report our Board and Executive management diversity data as at 31 December 2022 in accordance with the new UK Listing Rules targets and associated disclosure requirements – see page 59 for further details. As at 31 December 2022, the Board comprised 36% women and there was one Director from an ethnic minority background. None of the four FCA-specied positions on the Board (Chairman, Group Chief Executive Ofcer, Group Chief Financial Ofcer or Senior Independent Director) was held by a woman. However, the UK Listing Rules targets do not consider other executive roles in the context of these senior Board positions and one of the three Executive Directors on the Board, our Chief Underwriting Ofcer, is a woman. The Board is fully committed to ensuring diversity at all levels of the Group, as evidenced by the existence of both the Board DEI policy and the Group DEI policy. The Board continues to work towards building a pipeline of diverse candidates and this, combined with the new UK Listing Rules targets, underlines the importance of the Company’s efforts in this area. The Company will continue to monitor its progress against these Chapter 3 72 Governance Nominations and Governance Committee report Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chapter 1 2 Performance and purpose 96 Hiscox Ltd Report and Accounts 2022 Board DEI objectives and 2022 progress Board objective Implementation Progress 1. Ensure a diverse 1 and effective Board 1 Diversity of gender, social and ethnic backgrounds, cognitive and personal strengths. • Annually review the structure, size and composition of the Board, including the balance of skills, knowledge and experience to assist in the development of a diverse pipeline. • Annually review Board diversity as part of the Board evaluation process. • Ensure the values of the Company promote an open and inclusive environment. Page 75 of the report demonstrates the diversity of our Board as at 8March2023. Via the delivery of our Board diversity, equity and inclusion policy, we have: • maintained a gender balance in line with the Davies and Hampton-Alexander reviews since 2015 and intend to work towards the current FTSE Women Leaders Review target and UK Listing Rules target for gender balance at Board level; • had one ethnic minority Director since 2016. 2. Ensure that all Board appointments are considered on merit within the context of the strategy requirements and diversity considerations • At least annually review the succession plans for the Board and senior management and ensure the talent review process is in place for the wider workforce. • Gender and ethnic diversity will be taken into consideration when evaluating the skills, knowledge and experience desirable to ll each role and when considering the methods to attract diverse candidates. • A search rm will normally be engaged to assist in the review of the market and they should be committed to addressing gender and/or ethnicity diversity. • All appointments must be made on merit as aligned to the needs of the Board, the Company, and its strategy and values. Each June, the Board and Committee review the talent plans for senior management and, each November, the Board succession plans. Diversity is taken into account as part of this process. Talent reviews are replicated throughout the business. 3. Ensure that the overall workforce is diverse and inclusive • Review the execution of the Group diversity and inclusion policy 2 . • Ongoing Board and Committee review of matters relating to employee retention, engagement and culture. 2 hiscoxgroup.com/diversity-and-inclusion-policy. The Committee has an annual report from the Global Head of DEI. We have a Head of DEI and a DEI Executive Sponsor for the Group, who together drive our progress which includes a commitment from every business unit and functional area leader to deliver on our employee DEI targets. These plans are monitored centrally and also via specic local reports to subsidiary boards. The tables on page 59 provide a breakdown of diversity at Hiscox. The Board and Committees receive reports relating to key workforce matters on an ongoing basis, including employee retention, engagement and culture. Chapter 3 72 Governance Nominations and Governance Committee report Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chapter 1 2 Performance and purpose 97Hiscox Ltd Report and Accounts 2022 oversight of strategy; risk management performance and effectiveness of systems; Board accountability, focus and priorities for the coming year; Board composition; culture of the Board and the broader organisation; Board and Chair independence, expertise, decision-making and dynamics; succession planning; Board progress on diversity, climate change approach and digitalisation; communication with shareholders; clarity on purpose, direction and values; and Board support. The format of the evaluation was a condential survey of the Board. This review was completed by all Directors, with the results analysed by the Company Secretary, shared with the Chairman and discussed with the Board. Individual Director reviews are an opportunity to discuss individual skills, training requirements, succession and any other issues. Each Non Executive Director completes a self-assessment form which is followed by a detailed discussion on performance with the Chairman. The Senior Independent Director carries out the Chairman’s review and this supports the annual review process of the Chairman. Individual objectives and action plans are agreed following each meeting where appropriate. 2022 Board review outcomes The 2022 Board results demonstrated continued strong Board, Director, Chair, and Committee performance and re-afrmed the independence of the Board, the appropriate leadership provided by the Chair, and the robustness of the Non Executive Director succession plans and Executive Director talent reviews. Directors were fully engaged with the Board, Committee and Director evaluation process. The review We will look to build on this good work in 2023 and beyond by strengthening our ability to leverage data and insights, building our DEI skills and capabilities, inspiring others with our story, and embedding DEI into business as usual. Together, these initiatives will strengthen the diversity measures we already have in place and build the maturity of the DEI landscape at Hiscox. Board evaluation The Board and its Committees have a culture of continuous improvement and as part of this undertake a formal and rigorous annual evaluation of Board and Committee performance, the results of which help to inform action and development. Board and Committee effectiveness evaluations are carried out each year and the results are reviewed and discussed at the Board and its Committees – specically the Nominations and Governance Committee, with a focus on Board composition. 2022 Board and Committee effectiveness review Every third year, the Board evaluation is undertaken by an external evaluator. This was last undertaken in 2020 and is next scheduled for 2023. In the interim years, an internal evaluation is carried out which also reviews each Committee, the Board and individual Directors. The evaluation also assesses the completion of the prior year’s actions. Each is addressed in turn below. 2022 evaluation Building on the work of prior years, the interim year evaluation was carried out using our improved evaluation process of Board, Committee Chair and individual Director performance. The Board and Committee reviews focused on, among other things: Board targets over the course of 2023 and will provide a further update in the 2023 Annual Report and Accounts. Our employee networks (ENs), which focus on building communities and support around a variety of employee populations, expanded in 2022 to include disabilities and neurodiversity. Along with our Pan-African, Generations, Latino, Parents and Carers, Pride (LGBT+), WeMind (mental health), and Women’s ENs, these groups support our DEI strategy by helping to drive positive employee engagement and promoting a culture of inclusion. We are committed to improving our diversity at all levels, to ensure our workforce reects the customers and communities that we serve and the communities where we live and work. In some of the jurisdictions in which we operate, current laws mean it is not possible to collect ethnicity data from employees, but where we can we encourage employees to self-identify. In 2022, we expanded the diversity data we collect in Bermuda, the UK, and the USA to include more categories and expand some of the options within the categories for better coverage of diversity characteristics. Expanding the categories and options we offer helps us make the invisible more visible, build a more complete picture of our workforce (including intersectionality), understand our progress against our strategy, and better enables us to make smarter, more inclusive programme and policy decisions. As such, improving the volume of voluntary disclosure from employees remains a focus area and while that work continues we are pleased to be disclosing all-employee ethnicity data, as far as we are able to currently, for the rst time in this report. Chapter 3 72 Governance Nominations and Governance Committee report Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chapter 1 2 Performance and purpose 98 Hiscox Ltd Report and Accounts 2022 was positive with continued robust decision-making and a Board culture which fosters constructive discussion. The Board continues to engage in continuous improvements with the annual review process being an explicit point of reection on ongoing actions and new areas of focus. The Directors determined to focus on the following matters in 2023: • people and succession planning – further focus on workforce DEI, employee engagement, and long-term succession planning for senior management, Independent Non Executive Directors and the Chairman; • strategy – continue to review iterations of the strategy to further address risk, operations and the competitor environment in a fast-changing world; • IFRS 17 – oversight of IFRS 17 and understanding the business changes and peer positioning on this in addition to the nancial changes; • ESG – further focus on the development and communication of ESG initiatives in line with changing expectations and regulation. This will also include a continued focus on the diversity of the Board, particularly given that a number of Directors will be coming to the end of their term on the Board over the next three years. Additional topics for review were identied as part of the Board evaluation which will inuence the agendas and training plans for the year. In light of the nding that the Board continues to perform well and function effectively, it is not anticipated that there will be any changes to Board composition as a direct result of the Board effectiveness review conducted this year. However, as set out in more detail on page 96, the Board is cognisant of its commitment to diversity in all its forms and intends to work towards the current FTSE Women Leaders Review target and UK Listing Rules target for gender balance at Board level. The Board welcomed the review’s conclusions with the feedback directly linking to ongoing Board developments. The Chair owns the response to the ndings, and will report on their delivery in the 2023 Annual Report and Accounts. 2021 Board effectiveness review – progress against identied actions The Board and its Committees have made tangible progress against the action points identied during 2022: • focused on the succession of Executive Directors and other key leadership positions as detailed in this report, including ensuring a smooth transition to the new Group Chief Executive Ofcer, Group Chief Financial Ofcer and Audit Chair; • continued the review of the Group’s strategy to further address risk, operations and competitor environment in a fast-changing world; • continued to drive accountability and excellence in execution, including the continued monitoring of progress against the Company’s business priorities and key projects, and building on new management information to further increase the linkage between objective setting and monitoring; • continued discussions on strategy, including business mix and capital allocation; • devoted time to considering changes in the external environment and their impact on Hiscox, including competitor activity in key markets, further work on the Company’s strategic response to climate change and further deep dives on social and governance matters, as well as oversight of the Group’s compliance with new accounting standards (IFRS 17) to understand the business and nancial changes required, in addition to peer positioning; and • maintained a focus on talent management, employee engagement and the retention of high performers including further focus on workforce DEI and employee engagement. Robert Childs Chair of the Nominations and Governance Committee Chapter 3 72 Governance Nominations and Governance Committee report Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chapter 1 2 Performance and purpose 99Hiscox Ltd Report and Accounts 2022 Audit Committee report In relation to nancial reporting, the primary role of the Audit Committee (the Committee) is to monitor the integrity of the nancial statements of the Group and any formal announcements relating to the Group’s nancial performance, and review signicant nancial reporting judgements contained within them. The Committee meets four times a year to coincide with key points in the Company’s nancial calendar. Working with both management and the external auditor, the Committee reviewed the appropriateness of the interim and annual nancial statements, concentrating on: s the quality and acceptability of accounting policies and practices; s the clarity of the disclosures and compliance with nancial reporting standards and relevant nancial and governance reporting requirements; s material areas in which signicant judgements and estimates have been applied or where there has been discussion with the external auditor; and s any correspondence from third parties in relation to our nancial reporting. Following the transition of the Committee Chair role to Donna DeMaio in May2022, the Committee is comprised of seven independent Non Executive members. The Committee has recent and relevant nance expertise and competence relevant to the insurance sector. To aid the review, the Committee considered the key judgements and estimates in the nancial statements as identied by the Chief Financial Ofcer, as well as reports from the external auditor on the outcomes of its annual audit and half-year review. The Committee ensured that the external auditor, PwC, displayed the necessary professional scepticism its role requires. The signicant issues considered by the Committee in relation to the 2022 Annual Report and Accounts were as follows. i) Reserving for insurance losses As set out in our signicant accounting policies on pages 179 to 180, the reserving for insurance losses is the most critical estimate in the Company’s consolidated balance sheet. The Chief Actuary presents a quarterly report to the Committee covering Group loss reserves which discusses both the approach taken by management in arriving at the estimates and the key judgements within those estimates. The Committee reviewed and challenged the key judgements and estimates in valuing the insurance liabilities. During the year, the Group was impacted by two major events, Hurricane Ian and the Russia/Ukraine conict. It is important that the Company can quickly, and with a reasonable degree of reliability, estimate the gross and net losses arising from these events. The Committee received presentations from the Chief Actuary and management on the process undertaken, and the judgements arrived at, to establish these key estimates. The Committee is satised with both the process that was conducted and the reporting and disclosure of the resulting estimates. The Group is also impacted by the current high ination environment, with explicit allowance for this added into reserves over the year. The Committee received presentations from the Chief Actuary and management on the process undertaken, and the judgements arrived at, to establish these explicit loadings. The Committee is satised with both the process that was conducted and the reporting and disclosure of the resulting estimates. The Chief Actuary also detailed the remaining insurance risk given the signicant uncertainty in future ination rates, however, the Committee notes that the Group continues to adopt a prudent approach where uncertainty exists. The Company continues to keep Covid-19 losses under review, continually evaluating loss estimates based on entity-specic historical experience and contemporaneous developments observed in the wider industry when relevant. The Committee received detailed presentations from the Chief Actuary and management relating to the latest information and the recommendations arising therefrom. The Committee is satised with both the process that was conducted and the reporting and disclosure of the resulting estimates. While there remains uncertainty around the nal cost of these events to the Group, the Committee notes that the Group continues to adopt a prudent approach where uncertainty exists as to the nal cost of settlement. The Committee also reviewed the level of margin held within the insurance liabilities in the Group’s balance sheet. Management conrmed that they remain satised that the claims reported and claims adjustment expenses, together with claims incurred but not reported liabilities included in the nancial statements, provide an appropriate margin over projected claims costs to allow for the risks and uncertainties within the portfolio. As with prior years, the Committee also considers the report of the external auditor following its Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chapter 1 2 Performance and purpose 100 Hiscox Ltd Report and Accounts 2022 re-projection of reserves using its own methodologies, and the independent actuary who reviews the estimates of insurance liabilities for the Hiscox Syndicates. On the basis of this work, it reported no material misstatements in respect of the level of reserves held by the Group at the balance sheet date. On the basis of these assessments and the consistent application of the Group’s reserving principles, the Committee was satised that the valuation of insurance liabilities at 31December2022 was appropriate. ii) The recoverability of reinsurance assets The Committee received an update on the credit risk exposures to reinsurers. The reinsurer panel and associated exposures appear to be robust, and management are not aware of any material issues regarding concentration risk, credit risk or default risk. The Committee is satised with the approach taken and the recoverability of reinsurance assets. iii) Going concern assessment and longer-term viability statements The Committee noted the Group’s going concern statements included in the Interim Statement and in this Annual Report and Accounts, and the assessment reports prepared by management in support of such statements. More information on the going concern and viability statements can be found on pages 148 to 149. iv) Recoverability of goodwill and other intangible assets Judgements in relation to impairment testing relate primarily to the assumptions underlying the calculation of the value in use of the Group’s businesses, being the achievability of the long-term business plans and the macroeconomic factors underlying the valuation process. The Committee received updates on impairment testing and the analysis performed by management, and assessed the appropriateness of the assumptions made. The Committee is satised with the approach taken and the recoverability of the goodwill and intangible assets. v) Accounting for the dened benet scheme As explained in note 2.15 to the nancial statements, the Group recognises the present value of the dened benet obligation, less the fair value of plan assets at the balance sheet date. The Committee reviewed the key judgements and estimates used to measure the pension scheme net liability or asset position, and the results of the independent pension valuation report. A new funding agreement was signed in 2022 and the impact of this was assessed, with specic analysis of the minimum funding requirements of IFRIC 14 and the asset ceiling requirements of IAS 19. The Committee is satised that the assumptions used to measure the pension scheme are reasonable and that appropriate disclosures are provided in the Annual Report and Accounts. vi) Valuation of the investment portfolio The Group values and reports its investment assets at fair value. Due to the nature of the investments, as disclosed in notes 17 and 20, the fair value is generally straightforward to determine for most of the portfolio which is highly liquid. For the element of the portfolio held in equities and investment funds, a small proportion relies on a higher degree of judgement. The impact of the Ukraine conict on a small number of investments was reported to the Committee. The Committee, through the Investment Committee, receives reports on the portfolio valuation and is content with the process and the estimates reported. Sensitivity analysis on valuation of assets is captured within the nancial risk section (note 3.3 to the nancial statements) of the Annual Report and Accounts. vii) The recoverability of deferred tax assets A deferred tax asset can be recognised only to the extent that it is recoverable. The recoverability of deferred tax assets in respect of carry-forward losses requires consideration of the future levels of taxable prot which will be available to utilise the tax losses. The assumptions regarding recoverability of deferred tax assets remain consistent with prior years. The Committee reviewed the underlying assumptions for the recognition of deferred tax assets, principally the availability of future taxable prots and utilisation period. Controls and corporate governance The Committee received quarterly updates on the effectiveness of the nancial control environment. In addition, the Committee was updated on expected changes to governance and audit with a focus on internal controls and enhancing the nancial control framework. An approach to assess and implement the new requirements was proposed. The Committee was also given updates on various FRC papers published in 2022 on corporate reporting. Environmental, social and governance (ESG) reporting The Committee was updated on ESG reporting matters including external developments such as activity by the International Sustainability Standards Board (ISSB). As the demand for ESG-related disclosures increases, it is important that Hiscox demonstrates Chapter 3 72 Governance Audit Committee report Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chapter 1 2 Performance and purpose 101Hiscox Ltd Report and Accounts 2022 its commitment to environmental, social and governance factors. The Committee will play a key role in assessing the controls and assurance over these disclosures going forward. Insurance contracts (IFRS 17) and nancial instruments (IFRS 9) The Committee received regular updates on the Group’s IFRS 17 Insurance Contracts programme with an increasing focus on the preparedness of the Group to implement the new standard. The Committee monitored the implementation of the systems, communication plan, processes and operating model to support the delivery of the new nancial reporting requirements. In addition, the Committee reviewed and approved material methodologies, policies, assumptions and reporting metrics, supported by a number of Board technical training sessions. This included reviewing and challenging the methodology and key judgements underpinning the preparation of the opening balance sheet under IFRS 17. The Committee received regular updates from PwC in relation to the progress and ndings from their assurance work. The Committee concluded that the disclosures in respect of IFRS 17 included in note 2, basis of preparation, are appropriate for inclusion in the Annual Report and Accounts. The accounting policy changes and implementation impacts of adopting IFRS 9 Financial Instruments from 1January2023 were presented to the Committee. Internal audit The Group’s Chief Auditor provided quarterly updates to the Committee on the progress of the internal audit plan, the outcomes of recent audits, the progress of audit-related actions, and any other relevant activities including its key performance measures and the development of its resources. Updates on aspects such as the assessment of internal audit’s effectiveness and the review of the internal audit policy are shared annually. The internal audit plan is derived using a risk-based approach. In 2022, key themes included core underwriting and claims controls, pricing, business and IT operations, change, nancial control, data governance and controls, ESG and various regulatory themes. External auditor PwC has been the Company’s external auditor since 2016 following a tender process. PwC is invited to attend all meetings of the Committee and it is the responsibility of the Committee to monitor their performance, objectivity and independence. The Committee discusses and agrees with PwC the scope of its audit plan for the full-year and the review plan for the interim nancial statements. The Audit Committee receives reports from PwC at each meeting which include the progress of the audit, key matters identied and the views of PwC on the judgements outlined above. PwC also reports on matters such as their observations on the Company’s nancial control environment, developments in the audit profession, key upcoming accounting and regulatory changes and certain other mandatory communications. To provide a forum in which any matters of concern could be raised in condence, the Non Executive Directors met with the external and internal auditors throughout the year without management present. To safeguard auditor independence and objectivity, non-audit services are not contracted with PwC unless it is clear that there is no practical alternative and there are no conicts of interest or independence considerations. Throughout the year, the Committee has assessed the independence, effectiveness and quality of the external audit process. This assessment considers the Committee’s interactions with the external auditors and considers a variety of issues, including: the external auditors’ experience and expertise; their professional scepticism and approach to challenging management where necessary; their efciency in completing the agreed external audit plan; and the content, quality and robustness of their reports. The Committee also takes into account the perspectives of those in senior management who interact with the external auditors on a regular basis. This process forms the basis for the Committee’s recommendation to shareholders to reappoint the external auditor and no substantive concerns were raised by the Committee this year. Fair, balanced and understandable The Committee assessed whether the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s nancial position and performance, business model and strategy. The Committee reviewed the processes and controls that underpin its preparation, ensuring that all contributors and senior management are fully aware of the requirements and their responsibilities. Donna DeMaio Chair of the Audit Committee Chapter 3 72 Governance Audit Committee report Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chapter 1 2 Performance and purpose 102 Hiscox Ltd Report and Accounts 2022 Q& A: with Nicola Grant Group Chief Human Resources Ofcer People person It’s been a busy year for Hiscox – rening its employee proposition and evolving its hybrid-working model – and now the Company is looking to better promote its unique culture to potential employees. > 103Hiscox Ltd Report and Accounts 2022 104 Hiscox Ltd Report and Accounts 2022 Q: Before joining Hiscox you worked for ING in New York, then Amsterdam. How did that experience of working abroad prepare you for overseeing HR in a company with a global footprint? A: Working abroad, you learn a lot about yourself, and you learn a lot about adapting to the environment in which you work. You also learn how important it is to think in an inclusive, global way. For example, hosting calls in the morning on the East Coast of the USA when people have to dial in from the West Coast doesn’t create good experiences for all. You’d get up at 5am for these calls, absolutely exhausted, then they’d be cancelled ten minutes before. I became much more aware of simple things like that, which make such a big difference to how people feel. In Amsterdam, I had to work very hard to build relationships and gain buy-in from people in an ofce where English wasn’t the rst language, so I learnt what that feels like. What really sticks with me though is how intentional you have to be to make everyone feel included. That’s something I’m very, very passionate about. Q: What persuaded you to make the leap to Hiscox? A: I’d been with ING for 17 years and I loved it there. I needed the next move to be the right one. I’d talked with other nancial institutions, but culturally we weren’t aligned. When I got a call about Hiscox, my rst thought was: “I don’t think insurance is for me”. But I remembered that, 20 years ago, I’d heard about Hiscox having a forward-thinking sabbatical policy, so I agreed to have a conversation. I met with Aki, and there were a couple of things about that conversation that I found exciting. Hiscox is going through this transformation from a big-small company to small-big company, and the opportunity to inuence that shift was something really compelling. He was also completely authentic, and that was true of all of the people I talked to here. I genuinely felt that the culture would align with my own values, and for me that’s the most important thing. Q: Based on your own experience, does more need to be done to promote Hiscox’s employer brand to potential employees? A: Hiscox is at a really exciting point in time, where I think the opportunity to shout about our employer brand is huge. As someone coming in with a fresh perspective, I can honestly say that I do think Hiscox is unique, and so we mustn’t undervalue just what a special thing our culture is. That ‘human’ value is really lived, it’s such a lovely, friendly, caring organisation, but also one lled with smart individuals performing at an incredibly high level. Had I not heard about our sabbatical policy all those years ago, and remembered it because it was ahead of its time, I might have thought: “Insurance, boring, I’m not interested”. I think a lot of people have that thought process, so we need to invest in branding ourselves as an employer of choice, which is where we want to be, and getting there is absolutely a priority of mine. Q: How do you go about getting that message out there? A: It’s a number of things. We’ve been busy rening our employee proposition – our promise to employees, if you like – and we have to start activating that in the external environment. One thing we need to do is leverage our alumni in a stronger way. Throughout the organisation, we have a lot of what we call ‘boomerangs’. These are people who leave Hiscox but come back, which I think says a lot about the Company and its culture. I also think we have to be intentional about how we position ourselves in universities and in other places in the community where there’s the potential to start hiring. I think we have a real opportunity to differentiate ourselves there. Q: You mentioned the employee proposition. How has that been changing? A: We’ve made some quick tactical interventions to improve the employee proposition while we work on the bigger, more strategic piece of work. One of the main things is the concept of ‘time out’, which includes a more modern sabbatical policy, so that instead of having to wait ten years, we now offer a four-week sabbatical for every ve years of employment. We also introduced ‘Hiscox days’: people can take two extra days off every year for whatever they want – religious holidays, birthdays or just a duvet day. So far, we’ve seen them used on everything from school sports days to people renewing their wedding vows and I just love to hear those stories. Then, from January 2023, people can buy additional holiday. People want more exibility, they want more choice, and Nicola Grant joined Hiscox in September 2022 after 17 years with ING, bringing considerable experience in HR transformation, organisational development and design, talent management and diversity, equity and inclusion. Based in London, her role involves developing the Group’s people strategy and leading a team of 95 HR professionals around the world. Q& A: with Nicola Grant Group Chief Human Resources Ofcer 105Hiscox Ltd Report and Accounts 2022 they want more time out of the ofce, so that’s what we’ve tried to deliver with this new suite of benets. The other differentiating benet is the introduction of HSX:26, which extends the concept of ownership – one of our values. Every permanent employee has been issued with stock that will vest in 2026, so every employee is now an owner of the Company. HSX:26 is still open, so we can offer a pro-rated grant to new hires up until 2024, which is phenomenal. Q: What’s next? A: The work around employee proposition won’t stop. We’re hosting some focus groups to further rene our employee proposition promise. There are a couple of other things we need to look at too. One is around capabilities. Which capabilities are we going to invest in in the future, which of those capabilities will differentiate us as an employer and give us the edge in the market? The other is our approach to talent management. More people than we would like say that their primary reason for leaving is career development, so we have to learn from that and we have to be more intentional about talent and career development for staff. That’s something that is denitely a priority for next year. Also, we continue to build our digital capabilities and from a people perspective that’s something I’m interested in – how can we free people up from what I’d call analogue tasks in a way that’s exciting for our people, but that also enhances our abilities to develop our talent? Q: The introduction of hybrid working has been a big change in recent years. How is that evolving? A: We’ve moved away from what employees told us was ‘rigid exibility’, where we said: “You need to return to the ofce x-days a week”. Instead, we’ve introduced a much more collaborative approach within the teams where they work things out according to their needs and dene this through a co-created team charter. That’s gone down incredibly well. I really do believe all leading organisations will continue to move towards activity-based working. We’re not going to go back to ve days a week in the ofce – that ship has sailed. I think the challenge is: how do you create the community and the connection, and maintain our amazing culture, when you don’t see each other very often? I think orchestrating that is quite challenging, so that’s where we’re going to spend the time over the next year. Q: Looking across the Group, are you able to maintain a consistent culture that crosses borders? A: A strong internal culture can live in all places. Everything we do needs to be congruent. We have to signpost our values and culture, and the context in which we operate needs to support them. So, for example, our ofces – the look and feel – should be similar throughout the organisation. Our managers should have the same level of capability throughout the organisation and the same approach to management. Our tooling, whether it’s performance management or our approach to talent, should be uniform. All of these things tell a story. I’ve been to quite a few countries now and my observation is we do this well and they’re all pretty consistent, so maintaining this will be a priority as we scale. Q: Outside of work, what gives you energy? A: Walking my dog in the elds in the morning. That’s a really important little bit of ‘me’ time and sets me up for the day ahead. We also introduced ‘Hiscox days’: people can take two extra days off every year for whatever they want – religious holidays, birthdays or just a duvet day. So far, we’ve seen them used on everything from school sports days to people renewing their wedding vows and I just love to hear those stories.” Hiscox is at a really exciting point in time, where I think the opportunity to shout about our employer brand is huge. As someone coming in with a fresh perspective, I can honestly say that I do think Hiscox is unique, and so we mustn’t undervalue just what a special thing our culture is. That ‘human’ value is really lived, it’s such a lovely, friendly, caring organisation, but also one lled with smart individuals performing at an incredibly high level.” 106 Hiscox Ltd Report and Accounts 2022 Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chapter 1 2 Performance and purpose Annual statement from the Chair of the Remuneration Committee Our remuneration strategy is designed to attract and keep talented, ambitious people and foster a culture that encourages sustainable high performance. Our aim is to deliver strong returns across the insurance cycle and create long-term value for our shareholders.” Colin Keogh Chair of the Remuneration Committee Dear fellow shareholder 2022 was a year of progress for Hiscox. The Group delivered a strong underwriting prot of $269.5 million, the highest for seven years, representing an ROE of 10.8% from the core business, in a year which has included a range of signicant natural and man-made catastrophes. Hurricane Ian losses were much lower than they would have been had we not reduced our exposure to under-priced business. Hiscox has achieved a combined ratio for retail within its target range a year ahead of market expectations and internal targets; the bench strength of talent at a senior leadership level was bolstered with a number of new appointments, including Paul Cooper who joined the Executive team earlier in the year as the new Group Chief Financial Ofcer, bringing fresh thinking to the top table; and employee engagement scores reached their highest level in ten years. The Remuneration Committee has been busy reviewing our remuneration policy and consulting with shareholders in light of the forthcoming policy review. As a result of this process, we have proposed a number of changes which we believe will ensure that our executive remuneration fully supports achievement of our strategic objectives and motivates continued high performance on behalf of shareholders – including our nancial results but also our wider role as a responsible employer, insurer and corporate citizen. The Committee is focused on ensuring that we are rewarding performance that is sustainable. As such, we plan to introduce non-nancial performance measures under our incentive plans for the rst time as we look to further focus Executive Directors on leading measures of performance. Our customers are at the heart of what we do and their experience of dealing with us is becoming an increasingly key part of our overall performance, particularly given our growing retail focus. Likewise, we know that there is a strong relationship between employee engagement and company performance, and we believe that making Hiscox a great place to work is in shareholders’ long-term interests, in addition to being valuable in its own right. We are also conscious of the impact we can have as a business on the environment, which is why we propose to allow scope within our long-term incentive plan for the addition of ESG-related targets. We anticipate that our use of non-nancial measures will evolve as we continue to develop our approach over the coming years, in line with our strategic aims and evolving market practice. The 2021 Annual Report and Accounts included details of the Group’s strategic evolution as Hiscox seeks to build more balanced portfolios in the big-ticket businesses, alongside the signicant structural growth opportunities that exist in our retail operations. This strategic evolution means that the prole of our returns is expected to change over time and this – along with the continuing volatility in market conditions – formed part of the Committee’s decision-making around incentive targets and how they calibrate with pay outcomes for 2023 and beyond (described below). Our objective was to ensure the strongest possible ongoing alignment between Executive pay outcomes and shareholder interests in the context of market change. Remuneration policy review The comprehensive policy review conrmed that, overall, our framework continues to operate effectively, supporting our aims of delivering strong 107Hiscox Ltd Report and Accounts 2022 Chapter 3 72 Governance Chapter 4 106 Remuneration Annual statement from the Chair of the Remuneration Committee Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chapter 1 2 Performance and purpose returns across the insurance cycle and creating sustainable long-term value for our shareholders. Nevertheless, we are proposing some improvements, set out below, with three key objectives in mind: A to align the policy with good remuneration practice among UK-listed companies; A to reduce any unnecessary complexity and volatility within the framework; and A to appropriately reinforce our environmental, social and governance (ESG) responsibilities. Throughout the review process, shareholders have provided valuable, constructive feedback on the proposals and on behalf of the Committee, I would like to thank all those who contributed. Performance measures for incentives Our incentives have previously been based only on nancial measures, with a discretionary overlay to account for non-nancial performance. The Committee intends to add formal non-nancial metrics into the framework of both the bonus and long-term incentive plan to reect the Group’s wider strategic objectives and align with developing market practice among UK-listed companies. The non-nancial metrics have been carefully selected to be relevant to business performance. Annual bonus The annual bonus is intended to align reward with the achievement of key annual objectives. We are proposing in the policy to base up to 25% of annual bonus awards on non-nancial performance measures. The majority of the bonus opportunity (75% of the total) will still be based on nancial metrics which remain the primary driver of bonus awards. Given the importance of our customers and colleagues, for the 2023 annual bonus we propose the introduction of employee and customer engagement metrics – each weighted at 5% of total bonus. The customer and employee metrics are direct drivers of business growth and performance, so fully aligned with shareholder value. Employee engagement will be measured by considering our annual employee engagement survey scores, and customer engagement will be considered through quarterly claims transactional NPS results across our retail businesses. Alongside these engagement metrics will be an individual personal objectives scorecard weighted at 15%, taking the total non-nancial component of the bonus for 2023 to 25% for each Executive Director. Long-term incentive plan (LTIP) The LTIP is intended to incentivise and reward our Executives for delivering against long-term objectives that are focused on growth in Company value and aligned with the interests of shareholders. The current metrics of growth in net asset value (NAV) per share plus dividends and relative total shareholder return (TSR) measured against a group of our main peers, remain key measures of our long-term success and are therefore being retained. To complement the existing structure we are proposing to include in the policy the capacity to base up to 30% of LTIP awards in future years on non-nancial measures, including an element related to our environmental impact in order to ensure that the LTIP supports the delivery of our wider corporate strategy and recognises the impact that we can have as an insurer and an investor. As work continues in this area and having considered shareholder feedback, for 2023 LTIP awards we propose to retain our past focus on nancial measures only, with a 50% weighting proposed for relative TSR and 50% for NAV growth. We will consult with shareholders again ahead of introducing an environment-related measure in future years. Good governance changes We are also proposing a number of smaller changes to the policy in order to ensure its continued alignment with good governance practice. A Bonus deferral mechanism: the current policy includes a cash deferral structure which applies for up to two years following the end of the nancial year, with a variable amount deferred depending on bonus quantum. In order to align Executive interests further with shareholders, align with market practice and make deferral simpler, we propose that deferral be applied at a at rate of 40% of bonus with amounts deferred into Hiscox shares and released three years following the end of the relevant performance year. A Post-employment share ownership guidelines: post-employment share ownership under the current policy tapers by 50% at one year post-termination. We propose to align to the Investment Association’s principles of remuneration, to extend the full post-employment shareholding guideline to two years with a requirement to hold shares in line with the in-service guideline in place immediately prior to departure, or the actual shareholding on termination if lower. 108 Hiscox Ltd Report and Accounts 2022 A Malus and clawback: we propose to extend our current provisions by adding to the existing list of circumstances that may trigger the use of malus or clawback. Further details are included on page 140. Target setting The strategic evolution of the Group (see pages 6 to 7) has two important consequences – rst, more consistent earnings growth should, over time, narrow the range of performance outcomes and, secondly, the planned increase in the contribution from retail should, again over time, reduce NAV volatility arising from underwriting. Therefore, the Committee felt it was important to incentivise Executives to deliver long-term incremental and stable growth in earnings. We will therefore seek to incorporate these factors as we set incentive targets. For 2023 this will involve: A slightly lower parameters for the ROE outcomes that underpin our bonus targets; and A a narrower range of NAV growth outcomes applicable to the LTIP. In setting the targets, we have also moved away from referencing the risk-free rate to absolute thresholds for ROE and NAV growth, reecting both broader market practice and also the fact that the risk-free rate is forecast to remain volatile. 2022 business performance The Group has delivered a strong result in an active year of geopolitical uncertainty, economic unpredictability and natural catastrophe losses. An underwriting prot of $269.5 million (2021: $215.6 million) and combined ratio of 90.6% (2021: 93.2%) is a testament to the disciplined execution of a rened strategy of building more balanced portfolios to drive reduced earnings volatility. Hiscox has achieved strong organic capital generation, enabling deployment of additional capital into a very favourable rating and underwriting environment while continuing to maintain a strong balance sheet and solvency ratio, and preserving a progressive dividend. However, an excellent underwriting performance was masked by signicant unrealised investment losses in our bond portfolio. This was driven by the high level of volatility in the global bond markets this year and some of the sharpest rises in interest rates on record. Most of the bond portfolio losses are mark-to-market losses, and thus accounting rather than cash losses. Given that our portfolios typically hold these investments until maturity, and the portfolio is of very high quality, we expect that these losses will unwind as the bonds mature. Remuneration outcomes for 2022 2022 annual bonus Pre-tax ROE, our performance metric for both Executive Director and wider workforce prot bonuses, was materially impacted by the unrealised investment losses on the bond portfolio. The Committee is rmly of the view that unrealised gains and losses in such a volatile external environment are not a helpful or fair reection of management performance. For the wider workforce, the Committee has decided that the fairest course is to pay bonuses on the pre-tax result after excluding the impact of unrealised investment losses on bonds in their entirety. As those bonds return to par over the next three years, we will adjust future bonus pools to remove the impact of any future gains. This smoothing effect of an accounting impact on the maturity prole of our bonds is, we feel, appropriate from a short-term incentive perspective. For the three Executive Directors, without adjustment they would not receive a bonus in respect of 2022. Given the Group reported its strongest underwriting prot since 2015 during what has been a turbulent year, and considering the broader contribution and impact made by Executive Directors, after careful consideration the Committee determined that it would be appropriate to exclude 50% of the unrealised investment losses on bonds ($107.5 million) for 2022, from the bonus calculation. This results in an adjusted pre-tax ROE result of 6.1%. The Committee is of the view that paying 25% of the maximum bonus opportunity to Executive Directors is a fair outcome and that payment of this level of bonus is aligned with the shareholder experience. The Committee also noted the improvement in share price performance seen during 2022 and the payment of dividends which were not impacted by unrealised investment losses. As with the wider workforce, we will adjust the bonus pools over the next three years to remove the unwinding of the unrealised investment losses, so that there is no future benet. 2020-2022 LTIP Growth in NAV per share plus dividends is our performance metric for awards made in 2020, vesting in 2023. Performance averaged over 2020, 2021 and 2022 has not met the vesting threshold and therefore awards made to Executive Directors will lapse in full. Chapter 3 72 Governance Chapter 4 106 Remuneration Annual statement from the Chair of the Remuneration Committee Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chapter 1 2 Performance and purpose 109Hiscox Ltd Report and Accounts 2022 2023 remuneration Executive Directors will receive salary increases of 5% which is below the average across other Hiscox employees in the UK of 6.1%. Award opportunities under the bonus and LTIP arrangements remain unchanged from 2022. Proposed changes to the performance metrics and the assessment process for both plans are outlined above. Further detail on the measures and targets are set out on pages 123 to 124. Wider workforce Engagement We recognise the importance of engaging with and seeking feedback from employees on issues including remuneration to inform decision-making. One of the ways we do this is through our Employee Engagement Network, a representative group from across functions and geographies, whose sessions are facilitated by Employee Liaison and Non Executive Director Anne MacDonald and whose anonymised views are shared with the Board throughout the year. In 2022, a range of people-related topics were discussed in this forum, including new ways of working, diversity, equity and inclusion (DEI) and remuneration. Another way in which we do this is through the Group’s annual employee engagement survey, and the Committee is particularly pleased with the positive improvements in employee engagement during the year, reecting the strategic importance placed on building connected teams post-pandemic. More information on the Group’s 2022 employee engagement scores, the highest in ten years, can be found on page 3. Rewards and benets Another of the Group’s strategic priorities for 2022 was to take a fresh look at the experience of working at Hiscox, ensuring it remains a great place to work and build a career. This was a consultative process, with views collected from across the Group, and resulted in some signicant improvements to the global benets offering during 2022: A the introduction of HSX:26 – an all-permanent-staff share ownership grant, in line with our ownership value and in recognition of the critical role that all employees play in achieving our strategic objectives between now and 2026, when the shares vest; A a refreshed sabbatical policy – giving all permanent staff a four-week paid sabbatical for every ve years of service; and A the introduction of Hiscox days – giving our people two additional days of leave to allow them to mark occasions that matter to them – from religious holidays, to family events, or something else important. These days may also be donated to a colleague. Pay Financial well-being is a core pillar of our benet philosophy and is why Hiscox has been an accredited Living Wage employer in the UK since 2019. In 2022, we recognised the additional challenges of high ination levels and an increased cost of living, and made cost of living lump sum payments of £1,500/$1,500/€1,500 to the lowest-earning portion of our workforce – with 38% of our people benetting from a one-off payment. Pay reporting, measurement and monitoring In 2022, Hiscox published its sixth annual gender pay report for the UK, and the mean pay gap of 16.0% (2021: 19.1%) represents steady progress at getting more women into more senior and higher-paid roles. Since 2017, on a mean basis, our gender pay gap has reduced steadily and is now 15 percentage points lower than when reporting commenced. While gender pay gap reporting is a UK-specic disclosure requirement, internally we measure and monitor the gap globally. This supports our continued focus on DEI and is reected in how we nurture talent and build a pipeline of diverse leaders. For example, each business unit and function across the Group has an action plan in place that is measured and monitored and ensures we are building gender diversity into succession planning and career development as we seek to realise women’s leadership potential across our business. In summary The Remuneration Committee is satised that the 2022 remuneration outcomes are aligned with the experience of shareholders and reective of business performance. Our policy has served us well to date, but we believe that the proposed amendments reect good market practice, align incentives with our wider strategic objectives, and will enable us to continue to retain and recruit the high-calibre leadership required to deliver in a highly competitive global sector. Colin Keogh Chair of the Remuneration Committee Chapter 3 72 Governance Chapter 4 106 Remuneration Annual statement from the Chair of the Remuneration Committee Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chapter 1 2 Performance and purpose 110 Hiscox Ltd Report and Accounts 2022 Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chapter 1 2 Performance and purpose Remuneration summary The Hiscox remuneration policy is designed to drive a culture of high performance and create sustainable long-term value for shareholders. The policy follows three clear principles: A simple and results-driven, with variable rewards if Hiscox delivers prots and shareholder returns in excess of specied return thresholds; A incentivise Executive Directors appropriately, over the short and long term; and A align Executive Directors’ interests with those of our shareholders, focusing on effective risk management, return on equity (ROE) and net asset value growth, which drives total shareholder return over time. Base salary Competitive xed pay. Bonus of c.25% of maximum opportunity for the Executive Directors. Long-term performance impacted by Covid-19 events and catastrophe claims. PSP awards granted in 2020 will not vest. Single gure of £1,390,959 for the CEO. A summary of the remuneration arrangements for Executive Directors is provided opposite. Annual bonus Aligned to shareholder interests. Benets Same as majority of employees. Performance Share Plan (PSP) Aligned to long-term shareholder interests and performance. Shareholding guidelines Aligned to shareholder interests. Key principles underpinning remuneration at Hiscox Remuneration outcomes for 2022 Summary of remuneration arrangements 111Hiscox Ltd Report and Accounts 2022 Chapter 3 72 Governance Chapter 4 106 Remuneration Remuneration summary Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chapter 1 2 Performance and purpose Salaries for 2022: — Aki Hussain: £750,000 — Paul Cooper: £525,000 — Joanne Musselle: £525,000 Maximum opportunity: — up to 300% of salary for CEO and CFO; — up to 400% of salary for CUO. Over the past ten years, the average bonus awarded to the CEO has been equivalent to 26% of the current maximum opportunity. Performance metrics: disclosure of the ROE target ranges and detail around the individual performance factors used to determine outcomes for 2022 is provided on pages 114 to 117. Deferral: part deferral of amounts in excess of £50,000. 2022 actual as a percentage of maximum opportunity: — Aki Hussain: 25% — Paul Cooper: 25% — Joanne Musselle: 25% Award subject to three-year performance period and two-year holding period. Maximum opportunity: 250% of salary for all Executive Directors. Vesting subject to: net asset value per share growth plus dividends (60% weighting) and relative TSR (40% weighting). 2022 award as percentage of salary: — Aki Hussain: 250% — Paul Cooper: 250% — Joanne Musselle: 250% Holding period: awards subject to a further two-year holding period following vesting. Salaries for 2023: — Aki Hussain: £787,500 —Paul Cooper: £551,250 —Joanne Musselle: £551,250 Salary increase of 5% in line with the average UK employee increase of 6.1%. Maximum opportunity unchanged. Performance metrics: 75% weighting on ROE and 25% on non-nancial performance metrics. Further details are provided on page 123. Deferral: at rate of 40% of bonus with amounts deferred into Hiscox shares and released three years following the end of the relevant performance year. Maximum opportunity, time horizon and holding period all unchanged. Vesting subject to: net asset value per share growth plus dividends (50% weighting) and relative TSR (50% weighting). 2023 award as percentage of salary: Aki Hussain: 250% Paul Cooper: 225% Joanne Musselle: 225% Share ownership guideline unchanged. Post-employment shareholding requirement: maintain the level of the in-employment shareholding guideline (or the actual shareholding on stepping down, if lower) for two years following stepping down from the Board. Executive Directors’ benets can include health insurance, life insurance, long-term disability schemes and participation in all-employee share schemes. Retirement benets are delivered via a cash allowance of 10% of salary, paid in lieu of the standard pension contribution, or a combination of pension contribution and cash allowance, totalling 10% of salary. These benets mirror those available to most other employees in the organisation. Base salary Competitive xed pay. Implementation of policy for 2022 Implementation for 2023 Read our updated remuneration policy. 132 Annual bonus Aligned to shareholder interests. Benets Same as majority of employees. Performance Share Plan (PSP) Aligned to long-term shareholder interests and performance. Shareholding guidelines Aligned to shareholder interests. Share ownership guidelines of 200% of salary for all Executive Directors, after ve years in role. 2022 actual: — Aki Hussain: 212% — Paul Cooper: 62% Paul Cooper was appointed in May 2022. — Joanne Musselle: 243% Post-employment shareholding requirement: retain a shareholding at the level of the in-employment guideline for one year and half this amount for the following year. 112 Hiscox Ltd Report and Accounts 2022 Chapter 3 72 Governance Chapter 4 106 Remuneration Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chapter 1 2 Performance and purpose Annual report on remuneration 2022 This report explains how the remuneration policy was implemented for the nancial year ended 31 December 2022. PwC has been engaged to audit the sections in the annual report on remuneration 2022 below entitled ‘Executive Director remuneration’ and ‘additional notes to the Executive remuneration table’, ‘annual bonus’, ‘performance outcomes for 2022’, ‘long-term incentive plan’, ‘Non Executive Director remuneration table’, ‘Directors’ shareholding and share interest’, ‘Performance Share Plan’ and ‘Sharesave Schemes’, ‘payments to past Directors’, ‘payments for loss of ofce’, to the extent that would be required by the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2013. Executive Director remuneration table (audited) 2022 Total split Name Salary £ Benefits £ Bonus £ Long-term incentive plan 4 £ Retirement £ Other 3 £ Total £ Fixed remuneration £ Variable remuneration £ Aki Hussain 1 750,000 10,593 562,500 0 67,8 66 0 1,390,959 828,459 562,500 Paul Cooper 2 340,057 6,009 237,182 0 30,732 620,273 1,234,253 376,798 8 57,45 5 Joanne Musselle 522,125 8,890 525,000 0 43,527 0 1,099,542 574,542 525,000 2021 Total split Name Salary £ Benefits £ Bonus £ Long-term incentive plan £ Retirement £ Total £ Fixed remuneration £ Variable remuneration £ Aki Hussain 511,000 8,308 462,15 0 0 46,453 1,0 27, 911 565,761 462,15 0 Joanne Musselle 511,000 9,060 550,000 0 46,938 1,116,99 8 566,998 550,000 ¹Aki Hussain was appointed as Group Chief Executive Officer on 1 January 2022 (he was formerly the Group Chief Financial Officer). 2 Paul Cooper was appointed as Group Chief Financial Officer on 9 May 2022 and appointed to the Hiscox Ltd Board as an Executive Director on 12 May 2022. Details of his joining package are contained on page 107 of the 2021 remuneration report. 3 Includes Sharesave scheme discount to market value of £4,500 (see page 121), plus 2021 bonus buy-out of £253,470 paid in May 2022, plus partial 2022 bonus buy-out of £119,318, plus share buy-out of £242,985 using the middle market quotation of £9.142 on the 20 September 2022 vesting date. Dividend equivalents were added. The share price had dropped 5% between the date of grant and vest. See page 117 for more details of buy-out arrangements. 4 2022 long-term incentives for Aki Hussain and Joanne Musselle relate to performance share awards granted in 2020 where the performance period ends on 31December2022. The award is due to vest on 15 May 2023. Based on the performance achieved, the awards will not vest. As the award will lapse in full there is no part of the award attributable to share price appreciation. 113Hiscox Ltd Report and Accounts 2022 Chapter 3 72 Governance Chapter 4 106 Remuneration Annual report on remuneration 2022 Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chapter 1 2 Performance and purpose Additional notes to the Executive Director remuneration table (audited) Salary Salary reviews take place in the first quarter of the year, effective from 1 April. As noted in last year’s remuneration report, Joanne Musselle’s salary was increased by 2.2% from April 2022, which was below the average UK-based employee salary increase. Aki Hussain’s salary remained unchanged from his 1 January 2022 starting salary. Paul Cooper’s salary was effective from him commencing employment on 9 May 2022. Base salaries for Executive Directors from 1 April 2022 were as follows: April 2022 £ Aki Hussain 750,000 Paul Cooper 525,000 Joanne Musselle 525,000 Benets For 2022, benefits provided for Executive Directors included the healthcare scheme, life insurance, income protection insurance and critical illness policies, as well as a Christmas gift and fitness cash allowance. Retirement benets Aki Hussain and Paul Cooper received a 10% of salary cash allowance in the year (less an offset for the employer’s UK National Insurance liability) in lieu of the standard employer pension contribution. Joanne Musselle receives a combination of cash allowance and employer pension contribution totalling 10% of salary (less an offset for employer’s UK National Insurance on the cash allowance). The value of these retirement benefits are shown in the Executive Director remuneration table on page 112. Executive Director retirement benefits are consistent with those offered to the majority of UK employees. This has been the policy at Hiscox for a number of years. Variable pay To ensure that remuneration is aligned with Company performance and the shareholder experience, a significant proportion of pay is delivered through incentive awards, consisting of an annual bonus and share awards under the Performance Share Plan, which can vary significantly based on the level of performance achieved. Bonuses are only paid if results exceed a specified threshold set taking into account prevailing market conditions. Although the remuneration structure has naturally evolved over time to reflect market and best practice, the simple framework has been in place for more than 15 years. 114 Hiscox Ltd Report and Accounts 2022 Chapter 3 72 Governance Chapter 4 106 Remuneration Annual report on remuneration 2022 Chapter 5 148 Shareholder information Chapter 6 157 Financial summary Chapter 2 20 A closer look Chapter 1 2 Performance and purpose Annual bonus (audited) The Executive Directors, along with other employees across the Group, participate in prot-related bonus pools, which are calculated at a business unit level and for the Group as a whole. The Remuneration Committee believes that the most appropriate measure for the calculation of the bonus pool is pre-tax return on equity (ROE), as this aligns management’s interests with those of shareholders, minimises the possibility of anomalous results, and ensures that incentives for Executive Directors and other employees are tied to the Company’s prot performance. When setting targets, the Committee seeks to motivate strong performance while also encouraging sustainable behaviours, in line with the dened risk appetite of the business. The bonus is structured in a way that ensures signicant variability in outcomes, including the possibility of no bonus being paid. Over the past ten years there have been three occasions when the Group delivered a pre-tax ROE below the required threshold and no bonuses were paid to Executive Directors. The threshold is set annually using an investment benchmark rate and for 2022 was set at a pre-tax ROE of risk-free-rate plus 2.5%. In determining the bonuses to be paid to Executive Directors, the Remuneration Committee bases its judgement on both the performance of the Group and a robust assessment of personal and strategic objectives, including adherence to specic risk management objectives. Details of the key objectives for 2022 and individual achievements by the Executive Directors are shown on page 116. The Remuneration Committee also seeks input from the Chief Risk Ofcer and Chief Actuary. To aid the Committee’s assessment of bonus outcomes, the following framework was in place for 2022. Pre-tax return on equity Indicative bonus range (% of max)
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