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Chief Executive’s reportIt is pleasing to report a profit before tax of 216.1 million (2014: 231.1 million), a return on equity of 16.0% (2014:17.1%) and premium growth of 10.7% to 1,944.2 million (2014: 1,756.3 million). Our good results are allowing usto pay a second interim dividend of 32.0p per share, which comprises a final dividend equivalent of 16.0p and aspecial dividend of 16.0p, bringing the year’s total distribution to 40.0p. We do not expect the capital washingaround our industry to go away in 2016, but we feel confident that the differentiated products in our retailbusinesses around the world will allow us to grow where margins are attractive, and we will use our retainedearnings to fund the solvency capital this expansion requires.Our US business, entering its tenth year of operation in 2016, contributed significantly to the Group’s growth in2015, increasing premiums by 21.5% and delivering a healthy profit. Hiscox London Market demonstrated itsadaptability with growth of 14.6% and good profits. Hiscox Re continued to evolve whilst making a material profitcontribution, with Kiskadee, our Insurance Linked Securities business, expected to manage US 1 billion by the endof 2016. Hiscox UK, Hiscox Europe and Hiscox Guernsey have all had a good year, with good progress shown inDirectAsia.It was not a loss-free year for our industry, or Hiscox. We, like others, have benefited from the absence of majornatural catastrophes. Our attritional claims were broadly in line with past years, and our skilled underwriting teamsavoided material impact from some of the larger industry losses such as the explosions in Tianjin in China, tornadoand freeze-related claims in the US, floods in the UK and mining related collapses in South America. In total thesecost us a modest 25.1 million.Hiscox RetailOur specialist retail operations differentiate us from others in our sector who have grown out of London andBermuda. The current competitive pressures have prompted many of them to try to replicate what we haveachieved, but we have the considerable advantage of having begun this journey in 1989, with an initial focus onhigh net worth homes. Since then we have launched new lines of personal and commercial insurance, enteredother countries, built great teams and invested heavily in our brand. Hiscox Retail now comprises half of theGroup’s gross written premium: 975.6 million in total (2014: 891.1 million). We began investing in commercialinsurances for small and medium sized businesses in 1994; at 580.7 million it is now the single biggest segmentin the Group.In aggregate our retail businesses generated substantial profits: 73.3 million in 2015, slightly down on 2014’s 78.1 million. This is due partly to our increased marketing expenditure which rose by 12.7 million to 44.5 million(2014: 31.8 million). These costs are taken to this year’s profit and loss account, but their benefit accrues overmany years; supporting not just our retail businesses, but the Group as a whole.Hiscox Retail comprises Hiscox UK and Europe, and Hiscox International. I review them in turn below.Hiscox UK and EuropeThis division provides personal and commercial lines cover. Personal lines include high-value households, fine artand collectibles and luxury motor. Commercial insurance is focused on small and medium sized businesses,typically operating in white-collar industries. These products are distributed both via brokers, through a growingnetwork of partnerships, and direct to the consumer.Our retail businesses in the UK and Europe made profits of 64.9 million (2014: 73.3 million). Claims within theUK and European businesses were benign for the majority of the year which encouraged us to boost our marketingexpenditure by 4 million above plan. This looked like a sensible decision until December when storms Desmond,Eva and Frank hit the UK. The impact of these events on our business is estimated at 10 million. Europe enjoyeda record year in Euro terms thanks to strong underlying performance, augmented by a single significant prior yearrelease. Exchange rate movements mean that this performance is not reflected in our Sterling result.Hiscox UK and IrelandHiscox UK and Ireland grew gross written premiums 1.9% to 443.3 million (2014: 435.0 million). Good growthacross most lines offset a reduction of 23 million in income from commercial partnerships as we rebalanced theportfolio towards more profitable lines.Brokers are our most important distribution channel, accounting for just under 80% of our UK business. We supportthem with disciplined, but creative, underwriting solutions and a focus on delivering good service via our network ofoffices in Birmingham, Colchester, Dublin, Glasgow, Leeds, London, Maidenhead, Manchester and York. Thebroker channel achieved good retention of 87% and grew by 7.6%.5

During the year, we saw a six-fold increase in demand for our cyber and data insurance product for smallbusinesses. We also acquired RH Classics, a leading classic car insurance specialist, which broadens ourcapabilities and gives us access to a new group of customers.Our marketing reach means we receive many enquiries from customers whose needs are outside of ourunderwriting appetite. In 2016, we are creating a managing general agent to underwrite these risks on behalf ofother insurers, providing them with a flow of business and us with fees and profit commission.At the end of the year we celebrated the opening of our new office in York, on time and on budget. Housing over250 employees, with room for further expansion, this is the hub of our direct-to-consumer operations andrepresents our high ambitions for this business. This office was off to a strong start on day one, as the team beattheir sales targets and served our customers brilliantly; a testament to our motivated and talented people. However,we did have a heart-stopping moment in December when swathes of York flooded and water crept towards ouroffice. Thanks to our dedicated staff, all of whom were able to get to the office on the worst affected day, and acannily built overflow tank, we were able to provide uninterrupted service to all of our flood-affected customers.We have for several years been progressively in-sourcing all of our direct customer sales and service functions andmoving our direct business to a new IT platform. These projects are all now complete, and after such a sustainedperiod of investing in infrastructure, the UK direct business will now focus on profitable growth, increasing scaleand improving its expense ratio.Hiscox EuropeHiscox Europe grew gross written premiums by 7.8% to 205.6 million (2014: 190.8 million) and achieved acombined ratio of 92.2% (2014: 94.1%), with a good performance in all product lines and from Spain, Germany andBenelux in particular.During the year, Hiscox Specialty Commercial was launched in France and Germany. This suite of productsbroadens our liability and property offering to small businesses. We hope to replicate the success we haveexperienced in the UK and early signs have been very positive. Our cyber product in Germany and the Netherlandshas also done particularly well, as demand grows and customer preparedness to buy increases. Alternativedistribution, via broker schemes, and partnerships with other organisations is growing in importance. In Spain,participation in a number of contingency and personal accident managing general agencies is generating goodgrowth.Not everything went to plan. One of our priorities was to accelerate the growth of our Franco German directcommercial business through a significant marketing investment. We achieved growth of over 20% to 5 million,but the returns were not commensurate with the cost. We have decided that the pan-European experiment did notwork and will be pursuing a less ambitious path in 2016. A key part of this is transforming the direct business to onewhich can also support the broker and partnership channels, and is managed and led at a local level.Our European Service Centre in Lisbon is operating well. It now performs up to 90% of transactions, representing akey step to reducing our European expense base.Our European business offers opportunities for steady growth despite the Eurozone’s travails. In 2016, we willexplore opportunities in the classic car market, look to grow the commercial and partnership business, andcontinue to use segmentation to drive productivity and efficiency.Hiscox InternationalThis division comprises Hiscox USA, Hiscox Guernsey and DirectAsia. Its revenues grew by 26.4% to 380.5million (2014: 301.1 million) and it achieved a combined ratio of 97.9% (2014: 100.1%). Hiscox USA was thebiggest contributor to the division’s growth and profit improvement.Hiscox USAHiscox USA primarily underwrites small-to-middle market commercial risks through brokers, other insurers anddirectly to businesses (either online or over the telephone). It delivered another stellar performance in 2015, withgross written premiums increasing by 21.5% in local currency to US 446.6 million (2014: US 367.6 million), and astrong profit. This result was helped by a stable claims environment, discipline on commissions and good expensemanagement.Our core professional liability and small commercial products continue to drive growth. During the year the teamhoned its underwriting strategy in order to grow its footprint and retain its competitive edge in the directors andofficers’, technology errors and omissions (E&O) and general liability product lines. We also made good progress in6

entertainment, enhancing Hiscox One, the first integrated E&O, property and workers compensation offering forentertainment professionals.The cyber market in the US is experiencing rapid growth with many new market entrants. We believe themarketplace will ultimately favour those carriers that possess the most experience in servicing these risks. We havebeen underwriting US cyber for 15 years but will not rest on our laurels. In 2016 we will launch an updated,comprehensive but simply-designed cyber product that reinforces our market position as a leading specialistinsurer.Our direct-to-consumer operations continue to grow apace, with policies in force now numbering over 120,000.Direct and partnership small business insurance is now our single biggest US line of business, and marketing hasbeen an important component of its success. We are developing our brand around the strapline ’EncourageCourage’. To promote this we have sponsored the Tough Mudder fitness challenge across the US and created theCourageous Leaders web series. We hope that, in time, our US brand presence will match that of our UK business.In 2016 we celebrate ten years of Hiscox USA. It has achieved critical mass, now provides the Group with a robustand sustainable profit stream, and has delivered 18% compound organic growth in the last five years. We haveestablished teams of experts in key states, including an exploratory team in Dallas in 2015, and a growing brand.We will not stop there; we see real opportunities despite competitive markets, and will continue investing in newtalent, IT and our brand in 2016.Hiscox GuernseyHiscox Guernsey comprises our Guernsey-based kidnap and ransom, private fine art and executive securityunderwriting operations with sales offices in London and Miami.Across the globe, market conditions remain very competitive. Premiums decreased slightly by 1.9% to US 103.6million (2014: US 105.6 million). A new team in Miami is driving growth, offsetting reductions elsewhere. Aninvestment in IT is also paying off. Our business partners are increasingly looking for e-trading solutions, and ournew platform delivers a more efficient process between producers, brokers and underwriters.We have combined the different teams from across the Group that focus on special risks, including kidnap andransom, private client fine art and executive security, into a single structure which is now branded Hiscox SpecialRisks. Led from Guernsey, the division will include teams in London, Munich, Paris, New York, Los Angeles andMiami. We believe that will allow us to provide better service and up-to-date products to corporate and personalcustomers in the increasingly volatile world in which we live.DirectAsiaIn early 2014 Hiscox acquired DirectAsia, a direct-to-consumer business with operations in Singapore, Hong Kongand Thailand that sells predominantly motor insurance. The business is developing as expected.Singapore performed solidly in a competitive pricing environment. Hong Kong made good progress too, despite thechallenges of a small motor insurance market and low average premiums. We continue to make particularly goodprogress in Thailand, where we see strong growth potential and where our brand-building work has been wellreceived. Investment in a new TV campaign, supported by print and social media marketing, has moved brandawareness to 37%, driving 500% growth in premium income.DirectAsia has clear priorities, a strong plan, and a growing customer base. As anticipated, Hiscox’s disciplinedapproach to underwriting and focus on brand-building has complemented the existing expertise within the team.Hiscox London MarketOur London Market business delivered a strong profit of 59.9 million (2014: 62.6 million), and increased grosswritten premiums by 14.6% to 585.2 million (2014: 510.8 million). Much of this increase reflects exchange ratefluctuations, with premium growth being 8.5% on a constant currency basis. The business achieved a combinedratio of 85.7% (2014: 84.2%) a good result despite the impact of price reductions. Its biggest source of growthcame through our partner White Oak, a specialist automotive and equipment underwriter. It contributed 5.0% ofgrowth, while new products and teams delivered 4.2% and core London Market lines reduced by 0.7%.The London Market remains competitive. Customers are getting used to lower prices and brokers are fighting toincrease their declining margin. Our response is to continue improving our relationship with brokers, supportingfacilities and quota-share agreements where we have the right degree of underwriting control and we see margin.7

Hiscox London Market has also benefited from market dislocation resulting from M&A activity, as leadingunderwriting talent joins our ranks. This has allowed us to strengthen our existing cargo team and establish newteams in product recall, and US general liability in London, and property in Miami.Looking at each division in turn:PropertyOur property division includes US and international commercial property, power and mining risks, and UScatastrophe exposed personal lines traded in the London Market.This area had another excellent year due to careful risk selection and a general lack of catastrophes. We focusedon retaining small-ticket commercial and household business, written through binding authorities with long-standingUS partners. Continuing pressure on big-ticket traded business meant the team needed to remain extremelydisciplined as it dealt with market challenges and looked for new opportunities. The launch of flood cover for thenewly deregulated US market is one example of such an opportunity. The private sector can offer wider terms andcoverage than the government-backed National Flood Insurance Program, giving consumers a more accuratelypriced and responsive product. It is ironic that London Market firms have an appetite for flood exposure, whilst inthe UK the Government has pushed the domestic industry to create a mutualised and distorted approach totackling this risk.Marine and EnergyChallenging trading conditions continue to depress the marine and energy market and our business in this sectorshrank by 12.2%. Upstream energy was already under pressure but the substantial drop in the price of oil hasfurther affected this account as pressure grows on clients’ budgets. The team has actively reduced exposure wherethe margins are unreasonable. Our marine and energy liability business did well to maintain its position in 2015,mainly due to our increased appetite as market conditions held up. However given overall conditions, we expectexisting marine and energy lines to reduce in future, except for cargo business which has been reinvigorated withsome new hires.CasualtyThis business grew by over 39% as a result of our investment in new talent and new lines of business over anumber of years. During the year, the team launched a new cyber product that covers medium-to-large sizedbusinesses for extortion threats and cyber breaches. The directors and officers’ team won ‘Underwriting Team ofthe Year’ at the 2015 Insurance Day awards. A new team was also brought on board to focus on US generalliability.Aerospace and SpecialtyThis division includes our aviation, space, contingency, terrorism, kidnap and ransom, political risks and personalaccident business.Despite a series of aviation losses in recent years, including the Germanwings and Metrojet disasters in 2015, thismarket is under extreme pricing pressure. The team is navigating their way through turbulent conditions withopportunities seized in the more profitable manufacturers and airports business. Our political risks business hasbeen hit by falling oil prices and political unrest in Ukraine, where we reserved claims for net 16 million at year end.Our terrorism business has felt the impact of facilities in the market where brokers are bundling risks together tomake them easier to place. We participated where we saw margin and opportunity.The personal accident team recruited last year is making a strong impact, delivering profitable growth in a specialistline we are keen to lead. Similarly, our new product recall team has made a good start. Other lines includingcontingency and kidnap and ransom are holding steady and delivering strong profits driven by good risk selection.Alternative DistributionAdapting to changes in distribution is key in the current environment. The role of the alternative distribution divisionis to facilitate innovation in the use of technology and specialist data to serve different markets. Its biggest businessis the underwriting of specialist automotive and equipment, including extended warranty through White Oak. Thisbusiness now represents 28% of our London Market income. Given its importance we increased our equity stake inWhite Oak from 10% to 30% in 2015, and continue to have representation on its Board.Hiscox MGAEarly in 2015, we acquired R&Q Marine Services, the mega-yacht and general marine leisure managing generalagent. This furthers our capabilities to meet the needs of high net worth customers and acts as a vehicle throughwhich we can act for Hiscox and other London-based carriers where the client’s requirements exceed our riskappetite. We have re-branded the business Hiscox MGA and included within it our Miami-based terrorism and fineart teams. Our Miami offering has expanded to include property underwritten for Hiscox and others, and in 2016 wewill include Middle East terrorism and a south of France-based yacht underwriter.8

Our London Market business remains a cornerstone of expertise, energy and profit wit

Each division delivered good profits through careful risk selection, growth in profitable niches and an absence of natural catastrophes. Investment in the Hiscox brand continues to deliver, with retail customers now exceeding 600,000. .