Hiscox Stock

Good morning, everyone. It's great to be here to present another set of strong results. Hiscox is built to deliver through the cycle. Our diverse business portfolio and effective execution of our strategy are delivering growth at attractive returns in an increasingly complex trading environment. We've grown premiums by 10%, our insurance service result is up 30% and we've delivered an attractive combined ratio of 90%. Our underlying investment income continues to benefit from strong yields and a growing asset base. And we've achieved a return on tangible equity of 20%, materially above our mid-teens through-the-cycle target. This drives strong capital generation and supports a 17% increase in the interim dividend. And over the last 12 months, we have returned $460 million of capital to shareholders through dividends and buybacks while growing the book value by 9%.

Now looking at the performance of our businesses in more detail, we have built a multiyear track record of delivering growth and strong profitability. In retail, we have now achieved 3 consecutive years of accelerating growth and margin expansion. Since 2023, our growth rate has doubled, driven mostly by policy count and reflecting the quality and breadth of our customer propositions. And today, we are upgrading our 2026 retail growth guidance from 8% to 9% for the full year, a material step-up from the 6% we achieved in 2025.

Retail margin continues to expand as we gradually and consistently improve within our 89% to 94% target range as guided at the CMD last year. In London Market, the diversification in our portfolio has again resulted in the business delivering a solid combined ratio after absorbing the impact from the Middle East conflict. This is consistent with our long track record of disciplined underwriting and profitable growth. In reinsurance, we have once again delivered an excellent combined ratio of 70%. This follows 3 years of achieving outstanding combined ratios in the 60s. Our disciplined underwriting and risk selection continue to be recognized by third-party capital providers, driving the top line in the first half.

Now turning to the profile of our growth. Our momentum is underpinned by dynamic capital allocation as we deploy or indeed pull back depending on the quality of the opportunities we see in front of us. Retail is leading our growth, adding $174 million of premium, almost as much as in the whole of 2025. We're capturing a structural growth opportunity by combining our competitive advantages in brand, marketing and technology with a market-leading underwriting and claims ecosystem and a business builder culture.

In London Market, we continue to navigate micro-cycles. And for the moment, growth in some existing lines and our selective expansion into adjacencies is offsetting targeted reductions in business that no longer meets our return thresholds. To bring this to life, we have launched structured solutions and downstream energy. Both are growing nicely. And at the same time, we shrunk major property premiums by 24%. And you'll hear more about this combination of expansion and cycle management from Joe in a moment. In reinsurance, we grew our top line by matching strong third-party capital demand with high-quality opportunities our underwriters are able to access. At the same time, we continue to manage our net exposures in line with the guidance we set out last year.

Now looking at the initiatives driving this growth. Over the last few years, we have materially increased the pace at which new initiatives are launched. You can see here a selection from the last 6 months as well as some in our pipeline, which we continually top up. We're expanding surety across Europe and personal accident in France, leveraging significant experience we have in these lines across the group. In addition, we are continuing to expand into more and more specialist niches, such as podcasters, streamers and even rage rooms, while building and strengthening our partnerships to get more products to more customers. We now offer commercial auto in U.S. DPD, underwritten by a highly reputable multi-line U.S. insurer and one of our largest existing partners.

Now looking ahead, we have added another top 15 U.S. carrier to our partnerships, who, in the second half will begin selling our products through their extensive agent network. These opportunities have significant potential to drive premium growth and fee income as they scale over the next 18 months. In London Market, we are continuing to grow our established digital auto underwriting capability through FloodPlus, complementing it further with a new product we call SURF, targeted at larger, more complex U.S. flood risks. And finally, we are expanding our geographic footprint. We've now received a branch license in Italy and appointed a Managing Director. And we're continuing to innovate using disruptive technologies to drive growth and redefine the customer experience.

As you know, a core underpin of our DPD business in retail has been the use of machine learning. This business is almost entirely auto-underwritten, an essential feature to generate satisfactory returns on policies averaging less than $1,000 in premium. We're now augmenting this with AI across distribution, underwriting and claims. Through technology innovation, we can sustain our growth momentum, opening new markets and creating new products while redefining the customer experience through a more frictionless service at every touch point. This is about using technology to drive growth, expand our reach, improve customer service and help our colleagues maximize their potential. And we're already making tangible progress.

Across our retail business, we are now in the process of rolling out new front-end portals for our customers and brokers based on a common modular technology. These will open up new self-serve capabilities and expand our ability to deploy AI tooling. We have launched self-service options in our U.S. DPD contact center. Customers calling our general inquiry line can now discuss their insurance needs and submit a claim with SARAH, our AI voice agent, whose voice you just heard a moment or 2 ago. Feedback so far has been excellent. Around 30% of the calls taken by Sarah are completed with her with a high customer satisfaction score of 88%.

SARAH joins HARI, our agentic solution in London Market, already deployed across middle market property. HARI receives submissions, reviews them, identifies missing information, assesses the risk against our underwriting appetite and provides recommendations to our underwriters. And in a first for Lloyd's, London Market in collaboration with Google Cloud is developing an agent-to-agent protocol, which will allow HARI to interact directly with a broker as they develop their own agents. We plan to make the protocol open source to accelerate the market's adoption of agentic trading. But we're not stopping there. We are continuing to invest and build new capabilities and solutions with some exciting developments to come in retail over the next 12 months, and I look forward to updating you next year.

Now with that, I'll now hand over to Paul, who will take you through our financial performance in the first half.

Thanks, Aki. Good morning. It's great to be here with you all today presenting another strong set of results. We have delivered a strong underwriting performance underpinned by profitable growth, underwriting discipline and the emerging benefits of our change program. ICWP increased by 10.1% to over $3.2 billion with profitable growth in all 3 business segments. Net ICWP grew by 6.8% to $2.3 billion, reflecting continued momentum in retail alongside disciplined underwriting management in big-ticket. The insurance service result increased by 30.2% to $255.4 million, demonstrating the quality of the portfolio and the benefit of improving operating leverage. The undiscounted combined ratio improved to 90.4%, an improvement of 220 basis points year-on-year. And this reflects the benefits of the group's diverse business model, a smaller impact from large losses and the emerging benefit of our change program.

In relation to the Middle East conflict, the group has prudently reserved an estimated net loss of $60 million with $40 million in London Market, reflecting our specialty exposures. This was offset by a benign natural catastrophe loss experience in the first half. The investment result was $128.2 million, lower than the prior year, reflecting mark-to-market movements on fixed income assets. And these are expected to unwind over the next 18 months as bonds mature and pull to par. These are excluded from operating profit.

The adjusted operating profit before tax was $331 million, up 26.3% year-on-year, generating a 20.2% operating return on tangible equity. And this includes a 2.2 percentage point benefit from the recognition of $64.5 million of deferred tax assets. We have taken management action, enabling us to access historical tax losses that were previously unrecognizable. This is expected to reduce future cash tax payments, but is not expected to have a material impact on future P&L tax charges.

Turning to shareholder returns. We have increased the interim dividend by 16.7% to $0.168 per share, consistent with our policy to set the interim at 1/3 of the prior year total and follows a 20% step-up in the 2025 final DPS. The $300 million share buyback is progressing well with 32% completed in the first half. And these results demonstrate continued delivery of our growth and change agenda and disciplined cycle management in big-ticket, all delivering attractive shareholder returns.

Moving to Retail. Retail continues to deliver accelerating growth and expanding margin. ICWP grew by 12.6% to $1.6 billion or 8.2% in constant currency, ahead of guidance. Growth continues to be broad-based and volume-driven as the policy count increased at a faster rate than premiums with rate up modestly at 1%. The insurance service result increased by 16.6% to $149.2 million, supported by profitable volume-driven growth and improving margins. The undiscounted combined ratio improved to 92.1%, benefiting from a lower loss ratio and the emerging benefits of the change program. Based on the continued momentum we see, we have upgraded our 2026 Retail growth guidance to 9% for the full year in constant currency. Retail continues to execute well against its multiyear growth strategy and remains on track for double-digit growth in 2028.

Turning to London Market. We continue to operate with a disciplined approach to cycle management while investing in innovation and selective growth opportunities. The reported ICWP growth of 9.8% benefits from prior period premium adjustments, mainly in property binders. The business was written in previous years, and we have adjusted where growth came in slightly higher than initially estimated. So on an underlying basis, ICWP increased by 5.3%, reflecting expansion into adjacencies and new business opportunities. Net premiums grew by 3.2% with higher reinsurance sessions as we benefit from lower reinsurance pricing. The insurance service result was $44.1 million compared to $61.8 million in the prior year. This primarily reflects the impact of losses from the Middle East conflict and a softer rating environment in some lines. As such, the undiscounted combined ratio increased to 93.8%. London Market is well positioned with a diversified portfolio, continued innovation and strong underwriting discipline.

Turning to Hiscox Re. ICWP increased 6.4% to $944.5 million, driven by additional third-party capital deployment. Net premiums declined by 7.4% as we maintain discipline in property catastrophe and retro lines, reducing exposure in areas where returns fail to meet our profitability hurdles or target volatility profile. And this was partially offset by growth in specialty and pro rata lines. The insurance service result increased to $62.5 million, reflecting strong underwriting performance and a benign natural catastrophe environment compared with the prior year. As such, Hiscox Re delivered an excellent undiscounted combined ratio of 70.4%. We continued to see strong demand from third-party capital with assets under management increasing to $2.9 billion, of which $1 billion is in our cat bond fund. Fee income from third-party capital was $53 million in the first half. Overall, Hiscox Re is delivering disciplined underwriting results and generating attractive fee income through our capital partners platform.

Turning now to our change program. We are seeing ongoing tangible progress across the business. Our productivity is increasing. ICWP per FTE is up 10% in retail. And in London Market, the number of submissions processed is rising materially, up 50x across sabotage and terrorism, cargo and middle market property as we deploy digitally augmented underwriting. And through the deployment of automation and AI, we are responding to our customers faster. 70% of total retail premiums are now auto underwritten and the average submission to quote time in London Market has reduced by 15% in middle market property.

Savings from claims recoveries have almost doubled and are recognized in the P&L. We've also achieved a similar increase in claims fraud detection, which is prudently yet to be recognized in the P&L. As we execute our resourcing strategy, 9% of roles have been outsourced with a higher proportion in impacted functions. In areas like technology, we have in-sourced a further 96 roles since the full year, many in Lisbon with similar or better capability in a lower-cost location. Pleasingly, following a deliberate program to upskill our staff, our teams are embracing the power of AI with a 69% adoption rate across the business. And we are continuing to optimize the number of applications, suppliers and property footprint.

In addition to unlocking growth and expansion, these changes are driving further efficiency and operating leverage across the group. In the first half, we delivered $45 million of P&L benefit against the 2024 baseline and incurred $39 million of costs to achieve. Around 1/5 of the benefit is driven by improvements in claims recoveries, which are recognized in the claims line on the P&L. Improvements in our expense base are driven by savings with strategic suppliers and a greater use of outsourcing. With strong progress being made across a wide range of initiatives, we remain on track to deliver $75 million of benefit in 2026 and $200 million in 2028.

Our growth and change agenda is driving positive operating jaws. Premium growth is outpacing underlying expense growth. As a result of the change program, underlying expenses have increased by only 0.4%. This reflects the P&L benefit more than offsetting underlying inflation, investment in the growth initiatives Aki spoke about earlier and an increase in brand spend, which will fuel retail growth over the longer term. This is favorable when compared with ICWP growth of 8% in constant currency. In turn, this is driving an improvement in the group admin expense ratio, which has improved 80 basis points to 16.1%.

Turning to investments. The investment result reflects continued strong cash and coupon income, supported by a growing asset base. As noted earlier, the investment result reflects mark-to-market movements on fixed income, which are expected to unwind over time as bonds mature. Our assets remain conservatively positioned with a high-quality bond portfolio, average credit rating of A and a short duration of 2 years.

Turning to reserves. We continue to exercise a conservative reserving philosophy. This enables our long track record of favorable reserve development with $174 million of positive development in the first half. These releases are broad-based and from all segments. At the same time, our confidence level remains strong at the 86th percentile above the target range of 75% to 85%. The risk adjustment of $355 million is an increase of $10 million since the full year.

The balance sheet remains robust. Organic capital generation of 14 points is driven by underwriting performance across all segments and returns from the growing investment portfolio. Our capital position remains very strong with an estimated BSCR ratio of 224%. On a pro forma basis, post announced returns, our BSCR stands at an estimated 210%. This strong capital strength supports continued profitable growth, investment in new capabilities and attractive shareholder returns.

With that, thank you for listening, and I will now hand over to Jo for an update on underwriting.

Thank you, Paul, and good morning, everybody. When people think about underwriting, they often think about pricing risk. But more than ever, the job of the CUO is about change, anticipating it, understanding and responding with speed and discipline. The world is changing at an accelerated pace, driven by geopolitical tension, technological advancement, economic uncertainty and climate change, and this creates both risks and opportunities. And our job as underwriters is to help our customers navigate through that uncertainty whilst protecting the long-term performance of Hiscox, performance which is increasingly being driven by underwriting actions rather than market tailwinds. And I think our first half results are a good example.

So in the first half, there were several industry losses, most notably from the conflict in the Middle East. We have prudently reserved $60 million net across both London Market and Reinsurance. Sadly, those tensions are ongoing. We continue to support our customers writing business reflective of the risk environment. Outside of this, industry natural catastrophe for the first half was below our 10-year average and losses across the attritional was well within expectations for the group and consistent with last year. And all of this has combined to give a group undiscounted loss ratio of 43% as we benefit from our portfolio construction, exposure management and our diversification.

The strength of Hiscox lies not in any one individual class, but in the diversification of the portfolio, and you can see that on the left-hand side. Retail compounds, London Market balances growth with cycle management and Reinsurance flexes between our and third-party capital. The retail growth opportunity gives the option but not the need to grow our big-ticket businesses. And because these portfolios are highly traded, we're able to manage the various micro-cycles that exist. And you can see that on the right-hand side. We lean in when conditions are favorable, but we step back when excess capital erodes returns.

So where are we in the market? So this next slide, hopefully, a familiar slide to you. The chart on the left is our rates indexed back to 2018 for our 3 core segments. Retail, which is purple, demonstrates the stability of a highly diversified portfolio. We're now serving over 1.7 million customers and rating across U.K., Europe and the U.S. is strong. Our big-ticket businesses have moved from a rate acceleration part of the cycle into a now more moderate phase and rates have come down in 2026, although much of the gains have been retained since 2018 and attractive underwriting opportunities still exist, although it is becoming more differentiated, and you can see that on the right-hand chart.

So as a reminder, adequate means pricing capable of delivering attractive returns in a mean loss environment, adequate plus is margin in addition, and low is still profitable, but just below our targeted return hurdles. As you can see, despite the pressures, the position is broadly consistent with the position we gave you at the beginning of the year, and that's for a couple of reasons. One, the market has evolved in line with our expectations; and secondly, our cycle management actions, which you can see on the next couple of slides.

So our London Market strategy is made up of 3 components. First, manage the cycle. We actively reduce exposure where risk and reward is not commensurate. And you can see in the first half, we've non-renewed 17% and 23% of major property risks and renewables risks. Added to this, we've reduced line sizes in places like general liability and product recall. The second component of our strategy is build out for adjacencies, adjacencies where we have existing expertise and capability. We're extending our property capabilities into U.S. mid-market. We're relying on our financial lines expertise for financial institutions and our terror expertise for aviation hull war.

And then the third part of our strategy is leaning into structural market changes. So facilities and MGAs are now an established part of the distribution landscape, and we have invested in structured solutions, global MGAs and beta follow to build the strategic portfolio solutions capability to support select parts of this market profitably. So the headline underlying growth for London Market is plus 5%, but that's actually made up of minus 8% from cycle management, offset by plus 13% from existing and adjacent lines where we see attractive opportunities, and this has moderated further on a net.

Our reinsurance strategy is similar with 3 components. First, manage the cycle. We selectively deploy our capital in line with our high return hurdles and our volatility profile. And you can see we've reduced exposure in the first half, reducing the property cat and retro by 11% and 35%. Secondly, we're scaling into our non-catastrophe lines, things like pro rata and specialty, where we benefit from client relationships and our expertise and further diversifies our portfolio. And lastly, scaling Hiscox Capital Partners. So third-party capital gives us both relevance in the market, but it also enables us to deploy more of our underwriting capability than our own balance sheet will allow, and this builds attractive portfolios for our partners and fee income for ourselves. So having significantly increased our net retained in a hard market, we're now just moderating that position as conditions evolve.

And then moving on to Retail, where our active portfolio management is underpinned by a specialist underwriting ecosystem across the whole value chain. And our focus now is on next generation of underwriting capability through data, technology and further automation. So we're rolling out a new pricing engine across U.K., Europe and the U.S., and this has given us greater segmentation capability, but it's also allowing us to respond to trends with greater precision and speed. We're enriching our data.

We're adding third-party data to our own proprietary data, again, multiple benefits from risk segmentation and selection, but also it makes us easier to do business with. As an example, our new Cyber Accelerate product has reduced the number of questions we need to ask our customers by over 60%. And then further automation is driving productivity, freeing up our underwriters to focus where their judgment matters. We have a new AI augmented solution that we've rolled out in a part of our U.S. broker business. And this is increasing or decreasing the time it takes to process a quote from submission to quote by 80%, and we're now going to roll that out for the rest of retail. So taken together, these all support profitable growth at scale.

So as I look forward, my focus is clear: manage the cycle, continue to reshape our portfolios in line with the evolving market conditions. Secondly, accelerate innovation, continue to invest in sectors, in products and distributions that will all define our future growth. And then lastly, elevate our underwriting. We're going to equip our underwriters with data and tools to really amplify their specialty expertise. So I have no doubt the market will evolve and risks will change, but I'm really confident in our ability to adapt. In a world defined by uncertainty, a strong underwriting capability is a competitive advantage. Thank you.

I'll now hand back to Aki.

Thank you very much, Jo. I'd like to leave you with a few key messages. So Hiscox is built to deliver growth and returns through the cycle, led by broad-based acceleration in retail and complemented by disciplined expansion and cycle management in big-ticket. Through our change program, we're building a stronger and more efficient Hiscox, launching new capabilities and increasing our operating leverage. We are achieving consistent and attractive returns in evolving market conditions, underpinned by dynamic and proactive capital allocation and an expert underwriting ecosystem. Our strong and sustained capital generation allows us to reinvest in growth in an unconstrained yet disciplined way while delivering attractive distributions to shareholders.

So turning to our outlook. Well, our outlook is positive. Retail growth continues to accelerate. So today, we're upgrading our 2026 full year guidance to 9%, and we remain on track for double-digit growth in 2028. With a return on tangible equity of 20%, we're ahead of our mid-teens through-the-cycle target. Our change program has realized a $45 million P&L benefit in the first half, and we're on track to deliver a $75 million benefit for the full year and $200 million in 2028. Our shareholders are benefiting from our delivery through a 17% increase in the interim dividend and our ongoing $300 million share buyback, which continues at pace.

As ever, thank you very much for listening, and we'll now take questions. All right, Ben?

Ben Cohen from RBC. Two questions really on retail. Firstly, could you just talk a bit more about what has driven the confidence in terms of the 9% growth now for the full year? And secondly, in that context, is it -- are you now maybe a bit too conservative in terms of only hitting a double-digit growth rate in 2028? What do you see as the drivers into 2027 to enable us to assess the likely growth rate then?

Great. Thank you for that question. The retail growth journey, as you know, has been a multiyear growth journey. We've been -- we've seen accelerated and delivered accelerated growth over the last 3 years. And each year, it's been accelerating, and we've been expanding margins. The really pleasing thing is it's not one factor. It is a multitude of factors. So we tend to call it a broad-based growth. So we're seeing growth accelerating in every business unit and practically every single channel.

And we laid out last year at the CMD, we set out the market opportunity. That market opportunity is vast, it is structural and it's continuing to grow. So the background is constructive. And what we've seen over the last -- I think most certainly the last 6 months is whilst that market has been growing, certainly in the U.S., France and Germany, we're seeing new business applications increase further. So that background is very constructive for us.

Secondly, as we laid out, we are launching new products. You heard about streamers, podcasters. There's a range of other variations of new niches that we're going into, new products that we're launching. You heard about the cyber product from Jo just a few moments ago. We're investing in distribution, adding more partners, winning new distribution deals. And I guess when you kind of pare it back, what we are seeing is a significant uplift in each of our channels. So if I think about our direct commercial business, which has been supported by extensive marketing over the last few years in building our brand and so on, that is now growing at 14%. And that's been accelerating. That's our direct commercial business across the retail business units.

A couple of them, particularly in the U.S., that's growing even faster. So that's going really well for us. Our distribution deals that we've signed over the last 3 years, you've heard me say previously that they take about 18 months to really get to scale, well, those are beginning to really kick in. We've spoken about the high net worth business in the U.K. where we've been deploying technology, market-leading customer service where the NPS scores are in excess of 80 and the wide coverage that we provide, we're a genuine market leader there, and we've seen double-digit growth there in practically every single quarter, I think, for the last 6 to 8 quarters.

So there's a multitude of factors that are driving that. And we guided to 8% this year, by the end of this year. Frankly, we achieved that ahead of our expectations in the first quarter. And another 3 months on the visibility that we have to the end of the year gives us the confidence that the momentum will continue to build from here and enables us to increase the guidance to 9%. And that gives us even more confidence that we will hit the double-digit growth rate in 2028. As far as 2027 goes, I think we'll update you at the full year. Ivan?

It's Ivan Bokhmat from Barclays. The first question would be another one on Retail, please. Just wondering, looking at your presence, we're seeing a little bit of a deceleration of rates. And of course, the markets are s becoming more competitive. I was just wondering how you think about retail becoming a headwind in the next few years? How much of a headwind could that become?

My second question is on London Market. I think it was very interesting to see you expanding your kind of MGA solutions and at the same time, getting some tailwind from the binders this year. Can you talk about how much of your underwriting right now is delegated authority? And how do you think about risks of that in a softening market?

And maybe the final question, just related to reserve releases. I mean, how strong would that be? Should we expect that to be? And I think, Paul, you've mentioned some of the claims efficiency gains. Is that something that's specific to first half? Or what kind of a run rate for those extra initiatives within reserving or elsewhere should we expect?

Great. Thank you, Ivan. So Paul will cover the reserve releases question. In terms of how much of our portfolio in London Market is delegated and how we think about it, Jo will provide some insight on that. In terms of retail headwind, absolutely not. Just let me remind you about the retail sort of portfolio. We -- yes, the rate tailwind is decelerating. The Retail portfolio is much less cyclical than London Market and Reinsurance. And if I kind of -- if you cast your mind back to pre-COVID, this is a portfolio where typically year-over-year, it was plus or minus 1% or 2%. That is our normal expectation with the Retail portfolio.

What we had was a post-COVID inflation spike. And as a result, we did see rates go up. I think in 1 year, they might have gone up 5% or 6%. But this is now reverting back to a more normal environment for the Retail business. The Retail business is about operating leverage and providing best-in-class service and getting growth through volume. And that is exactly what we're doing. In fact, if you were to draw the 2 curves, the rate has been decelerating for the last 3 years as we have come out of that COVID -- the inflation spike. And that has coincided exactly with the retail growth accelerating. So actually the volume growth that we've been delivering in retail has been ahead of that rate deceleration every single year, and we're very confident of achieving that, which is kind of further reflected in the higher guidance that we provided for 2026.

Jo, do you want to comment on the delegated authority and then Paul?

Sure, yes. So as you say, I mean, delegated underwriting is not new to us. We've done this for many, many, many years across all of our business. I suppose the longest example would be in our London Market business where we have a binder portfolio, and I think that's a 5-decade track record. I think the key to delegating underwriting authority is you're certainly not delegating underwriting performance or accountability. You're just managing it in a very different way. You're managing it more on a portfolio basis rather than on an individual risk type basis.

I mentioned in the presentation, we are leaning into some of the sort of structural changes in the market and particularly around things like global MGAs and beta follow. But we're doing that in a Hiscox way. We're doing that with underwriting discipline and we're doing that with technology. Technology plays a key feature here. Data really shortens the distance between portfolio management and action. So we're partnering with people who absolutely share our underwriting ethos, who have an alignment of interest in terms of that underwriting ethos. We're definitely partnering with people who have data and technology at their core, who are really leaning in, investing in the same way that we are.

And then lastly, that longevity of relationship. Lots of things that we do, we do for the long term. We want to partner with people who have a longevity of relationship. So yes, we're doing a little bit more of it. I think you can see from that pie chart that I showed, it's still a modest part of what we do. But yes, a growing part because that is a growing part of the market, but we're definitely doing it in Hiscox way.

Sorry, can I follow-up? Within the like managed premium in London Market, how much is delegated authority in general?

So Ivan, I think -- I mean, I'm not going to give you a number. But I think what I would say is there's lots of parts of our business that we do delegate. So what was historically called alternative risk, I think that is an area now that's morphed into the portfolio solutions. So you can see that there's delegation there in our binders business, so that predominantly is in the property segment of that London Market business. So that would be commercial binders, high net worth binders predominantly in the U.S. So there is a proportion that is delegated. But as I said, I mean, we've got a 5- decade, I think, track record for managing that business.

Maybe just to add to that, the previous statistic that we have provided is on the proportion of business we lead in Lloyd, and we continue to lead the majority of the business that we write.

Yes. And then on reserving and reserve releases, I mean, just talking of track record. So our track record on reserve releases is something like a 20-year unbroken positive PYD for the group. So that's a great starting point. And really, the way to think about it is we have a very conservative reserving approach on the way in, and you need that to experience the reserve releases on the way out as these claims mature and come to maturity. So from that perspective, what you've seen, and you can see on the slide is the confidence level is up at 86%. So it's modestly above the 75% to 85% range. And despite the reserve releases, we have added to the margin in the first 6 months. So we've built that up by a further $10 million. So that gives us the confidence of ongoing reserve releases on a prospective basis.

Now in terms of the change program, you're right to highlight it. What we have been doing is industrializing really the processes around both claims recoveries, but also claims fraud detection. And I'm pleased to say, you've seen the level of detection rates or recoveries has gone up quite meaningfully since 2024. That's manifested itself in the half year with a $10 million benefit from a claims recovery perspective, that's in the P&L. From a fraud detection perspective, we've been a bit more prudent on that basis and haven't changed our loss picks. So that will come through over time.

Shanti and then Michael.

Yes, just 2 questions. It's Shanti from Bank of America. So the first one is just on the Middle East reserves that you've taken action on today. That $60 million, how are you thinking about that? Is that a one and done sort of view or are you trying to build a stronger reserve position on uncertainty for that?

And then the second question is just on underlying attritional loss trends, mainly at London Market and Re. So before I came here, I tried to work out for the group, the underlying attrition, which seems sort of flat year-on-year on a group basis. But I'm just curious to know within the segments of Re and London Market, what the trends are looking like there? Are you seeing any deterioration in attritional for those 2?

Okay. Thank you. So in terms of the attritional, Jo, do you want to comment on that? In terms of Middle East, this is a -- it's a prudent reserve. As you -- I mean, you just heard from Paul in terms of our reserving philosophy that continues to persist in every aspect of our business. So we set aside $60 million, which is our loss estimate. That is currently about 25% incurred or was at the end of June. So 75% remains an IBNR. And this is -- we're reserving to the ultimate on the basis of actually known events and market estimates. So you'll have heard the sort of same narrative as we have. The market estimates for losses are in the region of $3 billion to $4 billion. So we kind of apply that analysis and use our own proprietary data, they don't come up with a number. Of course, it is a live event. So things could change. But this is -- regard this as a prudent estimate of what the position is today.

Yes. And then just picking up the question on attritional loss ratio. So I think I said, it is well within the expectation of what we expected for the first half. And you're right, the math that you've done is pretty flat year-on-year. So for me, we obviously talked about events that happen. We also -- we talk about individual risk, but the attritional loss ratio is -- I watch that like a hawk because that's the real health of the business. And yes, really pleased with the attritional loss ratios across both our big-ticket business and of course, our Retail business.

I think Michael had a question.

Michael Christodoulou from Berenberg. So 2 questions. One on the Reinsurance. In the press release, you stated that you've seen some loosening in terms and conditions. I'm not sure if that's industry or fiscal specific, if you could give us some color on that would be helpful. And then the second one, more broadly, I guess, you opened with AI. If you could give us some sense of the cost growth you're assuming in terms of your AI spend during the duration of the plan or at least even for this year, that would be also helpful.

Okay, great. So in terms of loosening of the Ts and Cs, Jo will comment on that. They're not Hiscox specific. In terms of AI growth of spend, I'll give Paul the opportunity if he wants to comment on that. Look, AI for us is a -- we see that as a tailwind for the business. And you've heard me kind of speak about it and Jo and others speak about how we are thinking about AI. We think it's going to create new opportunities, is indeed creating new opportunities even today to enable us to service our customers better, faster in a more productive way and will drive operating leverage.

But the really interesting thing for us is it will and is already beginning to unlock growth opportunities. You heard SARAH earlier on today. I mean, long and short of what that enables us to do, it enables our licensed insurance agents in the U.S. to spend much more time closing the deal, right? So if you can -- if a customer can satisfy all their needs through speaking to an AI agent, then we are spending less time closing the deal. And that is also one of the factors that is helping us drive up the growth across our digital platforms, and you'll see much more of that over the next few months and certainly over the next 12 months as we launch a number of new capabilities and products into the market, which we're particularly excited about.

Paul, do you want to comment on the costs?

Yes. I mean I think there's several perspectives on the costs. So we have been spending in the first half. It's all in the P&L. And then if you look forward, it's all in the guidance that's contained that we've put out there from a cost to achieve perspective. I think the important aspect though is, one, being super clear on how those costs are governed. And it's not just around the AI token or tokenization aspect, but it's also cost of the cloud, it's also the cost of licensing. I think the other aspect is part of that governance is just like any other large project, you've got to really be super clear on the business case, the ROI that comes through it. So we are pretty meticulous about those.

Yes. And then in terms of the terms and conditions, I think what we said is the terms and conditions have broadly held. And what we meant there was our ability to carve out differentiated terms is just now lessened and there's much more standardization of terms. So what that would mean is maybe we had a shorter hours clause, which is now more standard or a radius as an example.

I think the most important thing though is retention, which if you remember back to 2023, there was a seismic shift in the retention of where reinsurance business attached and that has held. And that was the most -- we talk about rate a lot and we talked about rate increasing, but that was probably the most important term and condition or term feature of the 2023 hardening, and that has held.

I can't see back there. So there's Chris. And is that Vash? Yes, it is Vash. Okay.

This is Vash from Goldman Sachs. I have 2 potentially 3 questions. One, I appreciate that a large part of your book is rate adequate. But are you able to give us a sense of how much does rate need to fall from here to actually make the business inadequate and enough for you to like walk away? And somewhat related to that, are you able to then give us a sense of how much capital is actually tied to each segment of the business? I appreciate you can't give us exact numbers, but some color would be helpful. And third one, potentially a very quick one. What is the differential in the fees between ILS and cat bonds?

Okay. So let me try and just untangle those. So in terms of rate adequacy, how much can the rates drop before it falls into the low adequacy segment. As you appreciate, I think we're not -- it's not going to be a precise answer, but I'll give -- that Jo will provide a perspective on that. All I'll say is it's not just rate. There's many other things that we could do. In terms of capital tied, I think that's a really sort of detailed question. I think Paul has said previously, look, the most capital-intensive business is Reinsurance, followed by London Market and then Retail.

In terms of fees, Paul, do you want to comment on the relative richness of the fees, ILS versus capital?

Yes. I mean I think the first thing is both aspects are capital-light capital-free. So they are accretive to ROE from both perspectives. The -- really the cap bond fund is more of an administrative nature. So the fee income is a lot lower. Still accretive, still good margin, whereas for ILS and indeed, let's say, the traditional third-party capital fronting, you get a fee based on volume and then a profit commission element.

Yes. And then if you pull up the rate adequacy slide, it's not a bad one to look while I talk through. So yes, what we've given you here and we've done this now for a number of periods is give you the adequacy of the portfolio. How this works is adequate is attractive returns in a mean loss environment. We, of course, price for losses and we price for mean losses. And so you can see that a lot of our business is falling into that adequate. And then adequate plus just means there's margin in addition. So you're absolutely right, there's margin in there that could erode.

I think what's interesting is how this has changed. So going back 18 months ago, just take London Market as an example, the low was like 5% and it's now 25%. So the market is evolving. It is changing. But we're acting accordingly. Within there, I talked about in the presentation, we've non-renewed a significant amount of our major property as an example, risks that we didn't believe were rate adequate. And therefore, we decided to non-renew. There is other areas in there. I called out product recall. Product recall has been in that sort of low adequacy, and we're really trimming line size. So we're reducing our exposure.

So the market, of course, will evolve. Within that market, it's largely still an attractive market. The vast majority is still in that adequate and adequate plus. But where it does change, where it does evolve, we're definitely going to act accordingly, and you've seen that in our results today with some of the lines that we're actually taking aggregate off the table because we don't believe we're getting paid for that risk.

[ Chris? ]

Just one question and a couple of follow-ups. So first of all, just on the change program. There is, I guess, a modest net benefit versus where you originally sort of planned for 2026. So I'm wondering if that's timing or some degree of seasonality? Or I guess the broader question behind that is how confident are you today versus when you first announced the change program in terms of delivery? I mean, could we potentially get excited that 2028 could be more than $200 million. So that's the first question.

Second question is really on sort of the gross to net sort of retention strategy, particularly in London Market. I mean we're obviously heading back lower. I think back in sort of 2018, 2019, you were in the 50s, I believe. I was sort of wondering if that is something that potentially could be -- we could see a return to that sort of retention within the London Market book.

And finally, just a very quick sort of follow-up actually on the previous question on the fee business. I wonder if you could give a little bit more color on the split between some performance fee and management fee. If you can sort of help us see of that $53 million, what is sustainable within that number?

Okay. So in terms of fees, Paul, do you want to comment on that in terms of the overall change program and the delivery to date and what that means for the $200 million. Again, Paul, I'm sure will comment on the pattern of delivery. But as far as the overall target is concerned, we're very confident in achieving the $200 million of savings by the end of 2028. And our confidence has only increased as the days and months have progressed as actual delivery has begun. As you can imagine, when you set out on this journey, you do a lot of work to try and understand the initiatives that will get us there. There's a lot of contingency you build in. This one has to. And we're confident of achieving that outcome. But Paul will comment on the pattern and the $45 million that we delivered in the first half.

In terms of the gross to net for London Market, we -- as you've heard Jo say many times, we underwrite and operate according to the market that's in front of us. You'll have seen the gross to net change actually so far in the first 6 months of 2026, where, frankly, we have bought more reinsurance because the pricing is more competitive. And we will adjust the portfolio depending on the market conditions. Will it go back down to -- I'm not sure it went all the way down to 50%. I think it went down to -- it might have been in the high 50s, low 60s. I'm not sure -- I don't -- it depends on the market conditions. We'll play that depending on how those conditions evolve.

Yes. And so on the change program, we got confidence in the $200 million in 2028 and similarly $75 million for the full year this year. So the $45 million is good progress against both the annual target and towards 2028. So those benefits are building nicely. I think the way to think about it is you're going to have some that have a degree of benefits that are a bit more lumpy in nature. So I can give you 2 examples. One is claims recoveries. So we have industrialized or in the process of really industrializing that process, but the recoveries by their nature will come in and will vary by quarter-to-quarter.

The other aspect is, let's say, procurement where we can renegotiate contracts. Some of them may be demand-led and you get a discount, but obviously, the volume will dictate the absolute amount of that saving in any period, depending on the services that are consumed. Nonetheless, I said it's building nicely in terms of those benefits. And you can see that really come through in terms of the outsourcing. So 9% of roles for the group is, in my view, pretty considerable from a standing start. If you look at the level of third-party fees and services that we're reducing because of in-sourcing, 97 roles again in 6 months is pretty handy. So ongoing good progress. In centers of excellence, we are driving out further. So I think you can see the trajectory from the change program.

And then in terms of the fee income, it's disclosed on 24, the various fixed and variable on the bottom right. You can see there's a decent amount coming through from the PC and the fixed element is decent. What we have been doing is driving and trying to structure the sort of third-party capital to have a greater component of fee income to really limit the volatility of that number.

Okay. I think we're done. So guys, thank you very much. Thank you very much for some great questions, and we'll see you again in a few months' time. Thank you.

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

I would like to pass the conference over to our host, Paul Cooper, Chief Financial Officer. Please go ahead.

Thank you. Good morning, and thank you for joining today's call. As usual, I will take you through the group's performance for the first quarter, focusing on premium growth, claims, the investment result and our change program before handing back for questions.

Starting with growth. For the first 3 months, ICWP increased by 10.2% to over $1.7 billion. Growth was driven by accelerating momentum in all retail markets and disciplined growth in big-ticket. Hiscox Retail continues to be the fastest-growing segment. This reflects the structural opportunity and the benefit from broad-based management actions. In big-ticket, we are proactively managing the softening cycle while achieving growth through new business initiatives and in selecting existing lines where conditions are more favorable.

Diving into a bit more detail, starting with Retail. Premiums grew 8% in constant currency in line with full year guidance as growth accelerated in all markets. The wide range of growth initiatives across each business over recent years drove a step-up in momentum from 6.3% at full year 2025. Growth was broad-based and volume-led with modest rate increases of 2% in the quarter.

The U.K. business grew 8.9% in constant currency. Art and private client delivered double-digit growth for the seventh consecutive quarter. U.K. small commercial continued to execute its sector strategy, deepening specialisms in areas such as independent retail, sports and leisure and health, beauty and well-being.

Europe grew 6.8% in constant currency with sustained strong growth in our two largest markets, Germany and France. We continue to build production from distribution deals signed in recent periods and have launched several new deals in the quarter.

Our U.S. business saw the strongest improvement as ICWP increased by 8.5% with momentum across both digital and broker channels. DPD delivered 9.6% growth, supported by continued double-digit growth in digital direct and improving production in partnerships. Broker growth accelerated to 6.7% driven by stronger engagement, improved workflows and new customer segments such as expansion into life sciences and tech start-ups.

Turning now to big-ticket. Hiscox London Market ICWP increased by 4%. Micro cycles persist and more lines are now experiencing rate pressure. Major property, commercial property and household all saw double-digit rate reductions in the quarter. And while the market continues to soften overall, with average rate down 4%, we did see rate tailwinds in general liability and alternative risk.

Given current market conditions, we are highly selective where we grow, both in terms of our existing business and new initiatives. With regards to the former, we are selectively growing general liability as rates increase and we find attractive opportunities, including from last year's launch of financial institutions.

As for growth initiatives, momentum continues to build for our middle market entry last year and, in the quarter, we launched Hiscox Portfolio Solutions. This new division brings together into a center of excellence our existing alternative risk business with new lines. Using a range of strategies and working with a selection of high-quality partners, we will combine our expertise to broaden access to distribution and further diversify our portfolio.

Turning to Hiscox Re. ICWP increased by 7.1% to $527 million, driven by new third-party capital inflows. Net ICWP reduced by 5.6%, reflecting lower rates in property catastrophe, partially offset by growth in pro-rata and specialty lines. Rates declined by 13% in the quarter with a further slight decline at the April renewals and some modest softening of terms and conditions. Nonetheless, the portfolio remains adequately rated overall following cumulative increases of 65% since 2018.

ILS assets under management increased to $2.4 billion at the 1st of April, reflecting approximately $1 billion of capital raised, much of this into our cat bond fund. And as our cat bond fund grows, you should have in mind this does not impact written premium. And while this provides high-quality risk-free fee income, the fees are at a lower level than private ILS funds.

Looking ahead to our half year fee income, I would remind you 2025 was impacted by the California wildfires. And as such, H1 2024 is a better reference point at this stage given the recent inflow of new funds and their different structures.

Turning to the loss environment. Loss experience in the quarter was within expectations as a benign natural catastrophe environment offset the estimated impact of the Middle East conflict in the period. As a leading specialty insurer, naturally we have exposure to the conflict in the Middle East both through our London Market and Hiscox Re portfolios in lines such as war, terror and political violence, kidnap and ransom and marine war.

While this remains an ongoing event, to date, we have seen a small number of claims, primarily in London Market's K&R and WTPV books and, to a lesser extent, in marine war lines. The group uses extensive reinsurance for these lines of business. We continue to support our clients and the new business we are writing in the region is priced appropriately for the elevated level of risk. We have also launched a sidecar to supplement our balance sheet and provide increased capacity, which will generate additional fee income.

Turning to investments. The investment result was $34.1 million, representing a year-to-date return of 0.4%. This includes $69.6 million of unrealized fair value losses on fixed income securities. These are excluded from adjusted operating profit and will also unwind as the bonds mature. You should also bear in mind that there is a partial offset flowing through the IFIE.

As a reminder, the sensitivities disclosed at full year were, for 100 basis points increase in interest rates, the impact would be an investment loss of $164 million, partially offset by $75 million of income through the IFIE.

Group invested assets were $9.3 billion at the 31st of March with a reinvestment yield of 4.4% and a duration of 2 years. 94% of the portfolio is in fixed income and cash, which is conservatively positioned with an average credit rating of A.

Turning to our change program. Our progress continues at pace. Since the start of the year, we have transferred the first finance processes to our outsourced partner and transitioned to a single strategic IT provider for our data center and cloud support services. In addition, we are continuing to deploy AI across the business. In the first quarter, we rolled out a group-wide AI literacy program.

In the U.S., an AI agent is now monitoring all inbound calls into our call center, supporting improvements in quote to bind and retention. Also, the AI voice agent is delivering strong customer satisfaction and a 30% reduction in interactions requiring an adviser. We remain on track to deliver the $75 million P&L benefit in 2026, a significant step towards the target of $200 million of annual P&L benefit from 2028 onwards.

And finally, concerning capital return. The $300 million buyback is progressing well. As at market close yesterday, the group has completed 18% of the buyback, repurchasing 2.6 million shares. Looking forward, with our sharp focus on profitable growth and good progress on the change program, the outlook for 2026 is positive.

This concludes my remarks, and I'll now hand back for questions.

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

First one, just thinking about that Retail growth. It's coming in at 8%. It's the target for the full year. I mean, I actually had it sort of growing into that momentum as the year went on, coming off where you're exiting second half. I guess were you expecting that? Or you were expecting 8% already by Q1? And if it's not aligned, where in particular it's perhaps running ahead?

And the second one is just thinking about the Middle East conflict losses. We've had a few European reinsurers report, and it's difficult for us to know whether these are extra prudency reserves or the losses are actually materializing and coming in. I guess it's just sort of trying to get a grip of this coupled with a benign cat, is that just running at exactly where you'd expect it broadly? Or is there any potential for prudency here?

Thanks, Will. So look, from a Retail perspective, I'm pleased with the start of the year and, I think, as you've seen from the statement, that this has been really sort of generated from each of the markets. So we're seeing good momentum in the U.S., Europe and the U.K., all from the management actions that we've undertaken over the past several years.

I think what is especially pleasing is that this premium, the growth in Retail, at this stage of the cycle, the Retail business really is the growth engine. So what you've seen is it's volume-led. It's not rate dependent. And this is, as I said, high quality, so very much from a volume basis.

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

Now interestingly, around sort of that component, we did actually run a scenario last year after the 12 days war, and really, sort of how the events are unfolding today are pretty consistent with that scenario that we modeled. So there haven't so far been any surprises coming out of that. I think what I would say though is -- and we're seeing that events are unfolding and changing on a day-by-day, and that the longer that this goes on, I think more you're going to see the increased likelihood that, that loss is going to develop for the market.

Now what I would say is our underwriters are market-leading in those lines that we have exposure on, and they continue to monitor the exposures and how the event is unfolding closely. And I think that the important aspect is we continue to support our clients. So we are open for business. We are quoting in those markets. And I would say that where the business that we are originating is greater than our own appetite for our own balance sheet, we've launched that sidecar that I mentioned that enables us to essentially write the business on behalf of third parties and use their balance sheet and, in return, derive some fee income for that.

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

No, but I think it's a useful addition. So look, I think if you think about the market for that premium in aggregate is pretty small. So you shouldn't expect our top line to increase by hundreds of millions. This is more like a tens of millions addition to the top line at sort of full power, let's say.

Our next question is from Kamran Hossain with JPMorgan.

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

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

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

So yes, I think it's useful just to sort of put this in context. So you're right. At the year-end results, Jo put out a slide that is forward-looking and it had rates down at 4% for London Market. And the rates at Q1 are down 4%, so pretty much in line. And Re, the rates were down around mid-teens at 1/1. And again, the rates for sort of 1/1, 1/4 are around that area. So pretty consistent. But importantly, the level of rate adequacy has been, for London Market, 75% is rated adequate or adequate plus, and Re is 83% on an equivalent basis.

So you can see that although rates are softening in certain lines of business and more generally, I think the returns on offer remain attractive and the portfolio is adequately rated in aggregate from a sort of London Market and Re perspective. I think, nonetheless, we are exhibiting strong cycle management. We are walking away from business. We did highlight that major property is down mid-teens.

But if you look at the sort of mix, we are still growing in property in London Market. We are finding attractive opportunities. One of them has been mid-market property, where we have used innovation and our ability to use AI to extract data much more efficiently in order to grow and target, say, the mid-market property space.

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

Our next question is from Ivan Bokhmat with Barclays.

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

And my second question, I think it's a follow-up actually on Kamran's question. But in the past, sometimes you would give the indication of the go-forward combined ratios you may achieve with new underwriting for the large ticket businesses. And I think last time we were talking about that, you were suggesting that low 70s for reinsurance and mid-80s for London Market could have been that level. Given the rate moves and some of that cycle management, are we now to, let's say, the low 90s for London Market and mid-80s for reinsurance? Or is that a wrong way to think about it?

Yes. Thank you. So look, on Retail and just the rates. You can, I think, in contrast see the big-ticket business and what's pleasing is the retail rates in positive territory at plus 2%. I think what I'd sort of say is that if you look at the business that we write, the large element is very much focused on that smaller micro end. And it's just not as rate dependent as, let's say, the bigger ticket business that is more cyclical.

I think in terms of the go-forward course, I think we're very pleased with the track record of both Re and London Market, but I'm not going to put out a sort of guide of what you should expect for the full year for the combined ratios in 2026.

Sorry. Can I go back to the Retail pricing? Just looking at the U.K. versus Europe versus U.S., maybe you could highlight where the price momentum has been accelerating, decelerating, where is it higher and lower.

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

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

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

Our next question is from Ben Cohen with RBC.

I had two questions, please. Firstly, could I just ask on the Retail side about the pipeline for new distribution agreements? I think you referenced some bancassurance in Europe, some new partners in the U.S. How do you see that building over the next kind of 12 months?

And the second question was just sort of broadly across the whole business. How are your views on inflation changing kind of post the Iran war? And could you talk through any sort of changes or initiatives you have to monitor those impacts?

Yes. Thanks, Ben. So in terms of the Retail pipeline, I would say that it's healthy and continues to be so, and it helps drive the momentum of the overall Retail business in each of those markets. I think the interesting aspect and what we found is that it takes a while, let's say, 18 months to 2 years for these distribution arrangements to come onstream and start getting to a decent amount of production.

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

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

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

And in terms of inflation, I think this is something that we manage and have been managing for decades. We systematically on the underwriting front amortize the entire portfolio on a quarterly basis. And really, inflation assumptions are built into our pricing as a consequence of that on a very regular basis. In times of elevated inflation, and probably 2022 is a good example, whereby for some of the assumptions on pricing we doubled our assumptions. And in certain lines, we then doubled them again maybe 3 months, 6 months after given that certain lines were more prone on a forward-looking basis, I hasten to add, to potential spikes in inflation.

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

Our next question is from Chris Hartwell with Autonomous.

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

And then the second question really is on reinsurance and the ILS growth. I mean, there's about $1 billion of new capacity that you've won. I mean, that's a much faster sort of rate of growth than we saw over the last few years and, obviously, that's quite a lot of market share we've seen. So I was wondering what the secret sauce is there. What are you doing differently this year than before?

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

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

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

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

I think in terms of the overall opportunity, it remains very significant. And I think that if you look at the sort of CMD numbers we put out, I think that this is sort of in excess of an $80 billion market. So the opportunity remains significant. I'm very pleased with the momentum that we have in that U.S. space and it's coming from all channels.

I think in Re ILS, so the second question. Really, this is sort of the new AUM that's coming in is really, I think, testament to the quality of the Re business and the Re franchise. So we can offer to our clients from a third-party capital perspective the ability to write through multiple different avenues, be it a dedicated syndicate in Lloyd's, through sidecars, through cat bond funds, through ILS, through traditional reinsurance.

And I think both the flexibility and range that we have, combined with the track record whereby we've delivered on our own balance sheet a combined ratio in the 60s for 4 out of 5 years, really shows the ability to attract and generate, I think, strong returns for our third-party capital providers but, at the same time, generate good fees from a fee income perspective for ourselves. So in each of the 3 years, we've generated in excess of $100 million per annum for those fees. So I think it really shows the strength of that business overall.

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

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

And then just on the U.S. broker recovery, that seemed to accelerate pretty sharply in Q1 this year, which is better than I thought. Is there anything that sort of unlocks that sharp improvement? And how should we expect that growth rate into the rest of the year? Will it kind of steady off? Or do you expect that to keep growing at a similar rate?

Yes. Okay. Thanks, Shanti. So from a reinsurance perspective, yes, I'd say that the feature of the market in 1/1 and 1/4 has been really just the softening in that environment for the market has been more price-led than terms and conditions. I think terms and conditions, as we have mentioned, have broadly held up. There has been some softening around the edges maybe around inclusion of payrolls and broadening that out slightly, along with hours, clauses, again, subject to a bit of softening in that space.

I would say that in terms of attachment points, though, generally, those have remained pretty stable, pretty steady. So more price-led than, I think, Ts and Cs. We haven't seen a meaningful introduction of more sort of aggregate covers for our own portfolio.

I think in terms of the U.S. broker growth, I'll sort of say and repeat the comments I made in an earlier question that really that U.S. broker growth took off in Q4 and has been pretty consistent or pretty similar too in Q1 as well. So happy with that. And I think it's come about. You've seen a new CEO in the U.S. in the form of Mary, who's now well into her stride. I think she's been here 18 months to 2 years.

And I think from that perspective, there's been efforts to really engage with brokers, streamline our internal workflows so that we can be more responsive and faster and introduce a level of automation, for example, in areas like auto renewals. But also you'll know that we started this in the U.K. but are rolling it out across the Retail businesses, including the U.S. and U.S. broker, the AI triage submission process.

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

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

I've got still a couple of questions, if I can. The first one is on the capital position. So just wondering, given the exposure is clearly now shrinking across the property cat lines, does that mean you don't need to hold on to as much of your capital base? That's the first question.

And then the second one is on AI. Just wondering if you could talk to any early learnings from the implementation of AI across the business. Good to see some of the use cases that you highlighted in the release this morning.

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

Great. Thanks, Abid. So look, from a capital perspective, what we said is we're not growing our CapEx. So we're not meaningfully shrinking it, but it's reasonably stable given the attractive returns that remain on offer in that portfolio. I think the other aspect is clearly it's nowhere near as capital intensive, but we are obviously growing the Retail business, which is half the book, at a decent rate. So I would say the capital generation of the group remains strong and has been, as demonstrated over the past, say, 3 years, for example.

I think in AI, I think the starting point is we rolled out, and as we put in the statement, a group-wide literacy program. And really, what this is intended to do is drive up the familiarity and ensure that people's day-to-day usage of AI makes them more efficient overall and more familiar. So it's quite interesting that post that rollout, for example, the usage of Copilot increased from something like single digits into the sort of 40%, 50% in the subsequent 2 weeks, to give an indication.

I think in terms of like real-life examples of where we're doing it, I think we've trailed well the successes we've had in sabotage and terrorism, in the augmented underwriting space using AI. And I think we continue to expand that across the London Market environment so that we can extract data using AI far more effectively and far more efficiently.

And then the specific cases that we have used within the Retail space and in the U.S. in particular are, one, in the call center, we've got an AI agent monitoring all calls and effectively feeding back into the ops business real-time sort of observations around using a dashboard, about how the processes and the calls can be improved. And that has, it's very early signs, but improvements around retention and customer satisfaction and conversion. Very early days, but there's a sense of optimism there.

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

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

Thank you. There are no questions waiting at this time. I'll turn the conference back over to Paul Cooper for closing remarks.

Great. Well, look, thank you for your questions. Thanks for listening, and we will see you with the fuller update at the half year. Thank you.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Will?

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

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

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

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

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

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

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

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

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

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

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

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

Ivan?

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

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

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

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

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

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

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

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

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

Okay. Let's keep going along. Abid?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

James?

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

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

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

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

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

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

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

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

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

Okay. Vash?

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

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

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

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

Okay. Ben and then Kamran.

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

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

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

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

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

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

Thank you, Jo. And Kamran.

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

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

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

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

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

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

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

Well, that was the core of the question.

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

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

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

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

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

Okay. Chris?

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

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

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

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

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

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

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

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

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

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

[Operator Instructions]

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

[Operator Instructions]

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