Hiscox Ltd Preliminary results For the year ended 31 December 2015
A good year Premium growth of 10.7% (2014: 3.3%) Hiscox Retail now 50% of Group GWP Profit before tax 216.1m (2014: 231.1m) Combined ratio 85.0% (2014: 83.9%) Return on equity 16.0% (2014: 17.1%) Total dividend for year 40.0p: second interim 32.0p (special 16.0p, final equivalent 16.0p) 1
Strategy of balance working 2
Financial performance
A strong result Full year 2015 m Full year 2014 m Gross premiums written 1,944.2 1,756.3 Net premiums written Net premiums earned Investment return on financial assets Foreign exchange gains Profit before tax Profit after tax Basic earnings per share (p) Interim/final equivalent dividend (p) Additional return (p) Net asset value m p per share 1,571.8 1,435.0 33.7 15.2 216.1 209.9 72.8 24.0 16.0 1,528.8 545.0 1,343.4 1,316.3 56.4 5.0 231.1 216.2 67.4 22.5 45.0 1,454.2 462.5 Return on equity after tax 16.0% 17.1% 4
Segmental analysis 31 December 2015 31 December 2014 Hiscox Retail m Hiscox London Market m Hiscox Re m Corporate Centre m Total m Hiscox Retail m Hiscox London Market m Hiscox Re m Corporate Centre m Total m Gross premiums written 975.6 585.2 383.4 1,944.2 891.1 510.9 354.3 1,756.3 Net premiums written 919.6 427.2 225.0 1,571.8 825.9 336.9 180.6 1,343.4 Net premiums earned 870.4 383.9 180.7 1,435.0 790.7 332.5 193.1 1,316.3 Investment result Financial assets 17.2 6.7 3.3 6.5 33.7 25.9 8.9 9.4 12.2 56.4 Foreign exchange gains/(losses) (8.1) 6.7 8.3 8.3 15.2 (5.1) 9.0 2.7 (1.6) 5.0 Profit/(loss) before tax 73.3 59.9 97.5 (14.6) 216.1 78.1 62.6 105.6 (15.2) 231.1 Combined ratio 93.5% 85.7% 46.6% 85.0% 93.5% 84.2% 49.8% 83.9% Combined ratio excluding monetary FX 92.6% 87.8% 51.4% 85.7% 92.9% 87.2% 51.6% 84.7% Business segments described in appendices. 5
Solid investment performance 31 December 2015 31 December 2014 Asset allocation % Annualised return % Return 000 Asset allocation % Annualised return % Return 000 Bonds 12.3 1.1 15.1 2.1 US$ 51.2 0.9 52.6 1.2 Other 8.9 0.6 10.1 1.9 Bonds total 72.4 0.9 21,585 77.8 1.5 36,714 Equities 7.2 4.0 10,410 7.8 7.6 17,604 Deposits/cash/ bonds <3 months 20.4 0.4 1,685 14.4 0.4 2,037 Actual return 1.0 33,680 1.8 56,355 Group invested assets 3,609m 3,245m Before fees, derivative positions and investments in insurance linked funds. 6
Portfolio asset mix High-quality, conservative portfolio Investment portfolio 3,609m as at 31 December 2015 Cash higher due to proceeds from Asset allocation Bond credit quality Bond currency split Bonds Gvt. USD Cash AAA GBP Risk assets AA EUR A CAD BBB BB and below 7.2 13.1 1.8 10.8 1.5 subordinated debt issuance Risk assets at 7.2% High credit quality maintained Yield to maturity of bond portfolio at 1.3% Average bond duration: 18 months 20.4 17.6 32.7 17.0 72.4 16.3 18.5 70.7 7
Capital management Supporting growth Changing requirements: growth opportunities and business mix moving to longer-tail Optimising balance sheet structure Subordinated debt issue: 275m at 6.125% Proceeds used to pay down shorter duration Letter of Credit by $458m $500m bank facility will remain undrawn until appropriate opportunities arise Capital management priorities Maintain progressive core dividend Retain balance of earnings to support profitable growth 8
Capital requirement 1.80bn available capital 1.71bn available capital (post return) Economic Regulatory A.M. Best (catastrophe stressed) Standard & Poor's Fitch ratings Group capital model (economic) Group capital model (regulatory) Bermuda solvency capital requirement Rating agency assessments shown are internal Hiscox projections of the agency capital requirements on the basis of projected 2015 year end results. Hiscox uses the internally developed Group capital model to assess its own capital needs on both a trading (economic) and purely regulatory basis. All capital requirements have been normalised with respect to variations in the allowable capital in each assessment for comparison to a consistent available capital figure. The available capital figure comprises shareholders equity and subordinated debt. 9
Cautious reserving approach unchanged Reserve releases 206m (2014: 172m) Loss development by accident year 1.05 2007 2008 2009 2010 2011 2012 2013 2014 1.00 0.95 0.90 0.85 0.80 0.75 0.70 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Ultimate net claims 10
Focus remains on growing shareholder value Net asset value ( m) Compound growth of 8% 1,800 Dividends and capital returns since 2012: 750m 1,600 1,400 1,266 1,256 1,365 1,409 1,454 1,529 Total shareholder returns over ten years: 1,068m 1,200 1,121 1,000 951 800 600 682 824 400 200 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 11
Underwriting
Mixed rating environment Rate on line indexed to January 2010 Core London Market UK local casualty and commercial Catastrophe reinsurance US Direct 140 120 100 80 60 40 20 Continued competition in core London Market and reinsurance business Growing where rates are flat e.g. UK commercial and US Direct 0 13
An actively managed business Total Group controlled premium 2015: 2,165m +14.0% 581m Period-on-period in local currency 2015 GWP Professional liabilities Errors and omissions Directors and officers liability Cyber Commercial small package Small technology and media Healthcare related Media and entertainment +15.2% 434m Kidnap and ransom Contingency Terrorism Product recall Personal accident Political risks Aerospace Contractors equipment FTC Extended warranty -2.5% 429m Non-marine Marine Aviation Casualty Specialty +5.2% 292m Home and contents Fine art Classic car Luxury motor Asian motor -4.7% 238m Commercial property Onshore energy USA homeowners Managing general agents International property -17.2% 111m +39.1% 80m Cargo Marine hull Energy liability Offshore energy Marine liability D&O, PI Healthcare General liability Local casualty and commercial Specialty Reinsurance Art and private client Property Marine and energy Global casualty 14
Hiscox London Market Changing business mix GWP m Total = 729m 71 800 700 176 600 Casualty: D&O, PI, healthcare Total = 456m 39 500 Contractors equipment FTC 11 145 400 Specialty: terrorism, political risks, personal accident, aerospace 137 300 Property: onshore energy, US homeowners, commercial 126 226 200 Marine and energy 143 111 100 2010 2015 0 15
Hiscox Re Changing business mix GWP m 600 500 Total = 534m 5 34 Total = 438m 400 300 12 27 27 31 51 Casualty Specialty Healthcare 495 Marine 200 100 290 Kiskadee Property 0 2010 2015 16
Casualty extreme loss scenarios Changing portfolios, changing risk As our casualty businesses continue to grow, we develop extreme loss scenarios to better understand and manage the associated risks Losses in the region of 75m- 300m could be suffered in the following extreme scenarios: Event Pandemic Cyber Multi-year loss ratio deterioration Global Spanish flu type event (high infection, low mortality) 45% infection rate, 20% medical treatment, 0.3% case fatality rate Systemic attack on domain name servers. Widespread webpage outage for one to two days. Insurance industry loss of c. 5bn Est. loss 75m 100m 5% deterioration on three years casualty premiums of c. 2bn 100m Economic collapse US GDP drop of 10% to 15%, approximately three times the 2007-08 financial crisis 225m Casualty reserve deterioration 35% deterioration on existing casualty reserves of c. 825m Est. 1 in 200 year event 300m Property catastrophe 1 in 200 year catastrophe event from 160bn US windstorm 300m 17
Business performance
Managing the business Gross written premiums for the year to 31 December 2015 2015 m 2014 m Change % Growth in local currency % Hiscox Retail Hiscox UK and Europe Hiscox UK and Ireland 443.3 435.0 1.9 2.2 Hiscox Europe 151.8 155.1 (2.1) 7.8 Hiscox International Hiscox Guernsey 67.8 64.5 5.1 (1.9) Hiscox USA 294.5 223.1 32.0 21.5 DirectAsia* 18.2 13.5 34.8 24.7 Hiscox London Market 585.2 510.8 14.6 8.5 Hiscox Re 383.4 354.3 8.2 2.9 Total 1,944.2 1,756.3 10.7 7.2 *DirectAsia 2014 figure relates to the nine months from the date of acquisition. 19
A differentiated retail brand around the world 20
The numbers behind the marketing 150m invested over the last five years 2015 investment in marketing across the Group: 45m (2014: 32m) UK and Europe 25m (2014: 19m) USA 12m (2014: 9m) DirectAsia 8m (2014: 4m) 85% of expenditure focused on Direct business Total policy numbers (in force) Dec 31 2015 Markets Direct Broker Total UK 138,000 152,000 290,000 USA 93,000 40,000 133,000 Europe 9,000 100,000 109,000 DirectAsia 80,000 80,000 Total 320,000 292,000 612,000 Direct GWP 140m in 2015, 7% of total GWP Retail customer numbers in 2015 exceeded 600,000 21 22
Hiscox UK and Hiscox Europe Profitable whilst investing in brand and infrastructure Hiscox UK and Ireland Combined ratio 90.0% Storms Desmond, Eva, Frank: 10m impact 86% policy retention rate Increasing demand for our cyber and data insurance product Key projects delivered; new office in York, phase I move to new IT platform, insourcing of the direct commercial sales and service centre Acquisition of classic car insurance specialist, RH Classics Hiscox Europe Combined ratio 92.2% in local currency Benefited from single significant prior year reserve release 87% policy retention rate New products; cyber and specialty commercial delivering good opportunities 90% of transactions delivered from shared service centre in Lisbon reducing European expense base Restructured Direct platform 22
Hiscox USA Stellar performance Ten year anniversary compound growth of 18% over five years 2015 total GWP = $447m Core professional liability and small commercial products driving growth Product innovation in entertainment and cyber Property 9% Media and entertainment 9% Direct-to-consumer policies in force now over 95,000 On-going investment in brand, IT and talent Direct and partnerships 14% 47% Professions (broker channel) 21% Executive risks 23
Hiscox Guernsey and DirectAsia Pursuing opportunities in new markets Hiscox Guernsey New team driving growth in our Miami business, off-setting reductions due to competitive environment Investment in new e-trading platform delivering a more efficient process between producers, brokers and underwriters Hiscox Special Risks now in place, boosting global collaboration DirectAsia Business benefiting from evolution of leadership with new Managing Director Hiscox s underwriting discipline and focus on brand-building complementing local expertise Promising growth in Thailand brand awareness at 37% and premium income up 500% 24
Hiscox London Market Great performance in competitive markets Good growth of 8.5% in local currency Extended warranty; fire, theft, collision (FTC): 5.0% New products and teams: 4.2% Core London Market lines: -0.7% Strengthening existing classes and building new teams Personal accident, cargo, product recall, general liability D&O team awarded Insurance Day Underwriting Team of the Year Hiscox MGA building distribution Acquired R&Q Marine Services New people in Miami to access Latin American markets 25
Hiscox Re Good strategy and good fortune Good risk selection mitigating industry losses Growth in international, specialty and healthcare reinsurance New products deliver US$70m of new business since 1 January 2015 Continued quota share support from established partners Kiskadee now significant brand in the market; on track to reach US$1bn AUM in 2016 26
Hiscox Re Deploying third-party capital Reinsurance Premium retained Premium ceded to Kiskadee Premium ceded to other third parties 100% 90% Move from excess of loss to quota share reinsurance over time 17 quota share partners Kiskadee growing in importance 80% 70% 60% 50% 40% 30% 20% 10% 0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 27
Summary and outlook
Summary and outlook A good year Hiscox Retail now 50% of GWP: Direct-to-consumer now 7% Agile strategy in London Market and Hiscox Re Fourth year returning additional capital Retaining balance of earnings to fund growth Challenging environment ahead but diversity creates opportunity 29
Appendices Geographical reach Strategic focus A symbiotic relationship Long-term growth An actively managed business Hiscox Ltd results Boxplot and whisker diagram of Hiscox Ltd Realistic disaster scenarios Casualty extreme loss scenarios GWP geographical and currency split Group reinsurance security Reinsurance Portfolios USD bond portfolios Portfolios GBP, EUR and CAD bond portfolios Business segments Glossary of terms 30
Geographical reach USA Atlanta Chicago Los Angeles New York City San Francisco White Plains Guernsey St Peter Port Bermuda Hamilton Latin American gateway Miami Europe Amsterdam Bordeaux Brussels Cologne Dublin Hamburg Lisbon Lyon Madrid Munich Paris UK Birmingham Colchester Glasgow Leeds London Maidenhead Manchester York Asia Bangkok Hong Kong Singapore 31
Strategic focus 32
A symbiotic relationship 33
Long-term growth Hiscox Reinsurance Hiscox London Market - Volatile Hiscox London Market - Retail Hiscox UK Hiscox Europe Hiscox Guernsey Hiscox USA DirectAsia 2200 2000 Gross written premiums ( m) 1800 1600 1400 1200 1000 800 600 400 200 0 Internationally traded lines Local specialty lines 34
An actively managed business Total Group controlled premium 2015: 2,165m +14.0% 581m Period-on-period in local currency 2015 GWP Professional liabilities Errors and omissions Directors and officers liability Cyber Commercial small package Small technology and media Healthcare related Media and entertainment +15.2% 434m Kidnap and ransom Contingency Terrorism Product recall Personal accident Political risks Aerospace Contractors equipment FTC Extended warranty -2.5% 429m Non-marine Marine Aviation Casualty Specialty +5.2% 292m Home and contents Fine art Classic car Luxury motor Asian motor -4.7% 238m Commercial property Onshore energy USA homeowners Managing general agents International property -17.2% 111m +39.1% 80m Cargo Marine hull Energy liability Offshore energy Marine liability D&O, PI Healthcare General liability Local casualty and commercial Specialty Reinsurance Art and private client Property Marine and energy Global casualty 35
Hiscox Ltd results m 2015 2014 2013 2012 2011 2010 Gross premiums written 1,944.2 1,756.3 1,699.5 1,565.8 1,449.2 1,432.7 Net premiums written 1,571.8 1,343.4 1,371.1 1,268.1 1,174.0 1,131.6 Net premiums earned 1,435.0 1,316.3 1,283.3 1,198.6 1,145.0 1,131.2 Investment return 33.7 56.4 58.9 92.7 25.9 98.8 Profit before tax 216.1 231.1 244.5 217.5 17.3 211.4 Profit after tax 209.9 216.2 237.8 208.0 21.3 178.8 Basic earnings per share 72.8p 67.4p 66.3p 53.1p 5.5p 47.2p Dividend 24.0p 22.5p 21.0p 18.0p 17.0p 16.5p Invested assets (incl. cash) 3,609.4 3,244.9 3,129.5 3,055.8 2,873.4 2,779.7 Net asset value m 1,528.8 1,454.2 1,409.5 1,365.4 1,255.9 1,266.1 p per share 545.0 462.5 402.2 346.4 323.5 332.7 Combined ratio 85.0% 83.9% 83.0% 85.5% 99.5% 89.3% Return on equity after tax* 16.0% 17.1% 19.3% 17.1% 1.7% 16.5% Excluding derivatives, insurance linked funds and third-party assets managed by Kiskadee Investment Managers. *Annualised post tax, based on adjusted opening shareholders funds. 36
Boxplot and whisker diagram of modeled Hiscox Ltd net loss ($m) January 2016 Lower 5%- upper 95% range Modelled mean loss 800 700 600 500 400 300 200 100 JP EQ Japanese earthquake US EQ United States earthquake EU WS European windstorm US WS United States windstorm Industry loss return period and peril JP EQ US EQ EU WS US WS JP EQ US EQ EU WS US WS JP EQ US EQ 5-10yr 10-25yr 25-50yr 50-100yr 100-250yr 5-10 year 10-25 year 25-50 year 50-100 year 100-250 year EU WS US WS JP EQ US EQ EU WS US WS JP EQ US EQ EU WS US WS Mean industry loss $bn 02 02 06 22 06 07 10 43 17 18 15 76 26 35 20 113 36 62 27 163-37 Hiscox Ltd loss ($m) Superstorm Sandy - $20bn market loss, 7 year return period Loma Prieta Quake $6bn market loss 15 year return period 1987J $10bn market loss 15 year return period Hurricane Katrina $50bn market loss 21 year return period 2011 Tohoku Quake $25bn market loss, 45 year return period Northridge Quake $24bn market loss 40 year return period Hurricane Andrew $56bn market loss 25 year return period
Realistic disaster scenarios Hiscox Group losses shown as percentage of 2015 gross and net written premium Gross loss Net loss Industry loss return period Japanese earthquake 4% 21% $50bn 1 in 240 year Gulf of Mexico windstorm 8% 40% $107bn 1 in 80 year Florida windstorm 6% 24% $125bn 1 in 100 year European windstorm 3% 16% $30bn 1 in 200 year San Fransisco earthquake 6% 31% $50bn 1 in 110 year Estimates calculated in accordance with Lloyd s guidelines using models provided by Risk Management Solutions, Inc and AIR Worldwide Corporation. Industry return periods estimated using Lloyd s guideline industry loss figures. 38
Casualty extreme loss scenarios Changing portfolios, changing risk As our casualty businesses continue to grow, we develop extreme loss scenarios to better understand and manage the associated risks Losses in the region of 75m- 300m could be suffered in the following extreme scenarios: Event Pandemic Cyber Multi-year loss ratio deterioration Global Spanish flu type event (high infection, low mortality) 45% infection rate, 20% medical treatment, 0.3% case fatality rate Systemic attack on domain name servers. Widespread webpage outage for one to two days. Insurance industry loss of c. 5bn Est. loss 75m 100m 5% deterioration on three years casualty premiums of c. 2bn 100m Economic collapse US GDP drop of 10% to 15%, approximately three times the 2007-08 financial crisis 225m Casualty reserve deterioration 35% deterioration on existing casualty reserves of c. 825m Est. 1 in 200 year event 300m Property catastrophe 1 in 200 year catastrophe event from 160bn US windstorm 300m 39
GWP geographical and currency split 2015 geographical split controlled income 2015 currency split controlled income North America Other Westerm Europe (excl. UK) Worldwide UK GBP USD CAD and other EUR 18.5% 4.0% 11.6% 24.7% 41.3% 17.2% 8.4% 59.7% 14.6% 40
Group reinsurance security Receivables at 31/12/15 of 538.8m A AA AAA and collateralised Other 2016 reinsurance protections* First loss exposure by S&P rating A AA AAA 4.5% 8% 21.6% 47.6% 35% 57% 26.3% *Reinsurance placements in force at 20/02/2016. 41
Reinsurance Ceded as a percentage of GWP Reinsurance receivables as a percentage of total assets 25 13.4 13.4 20.9 18.7 21.7 19.4 21.0 19.0 19.0 19.3 23.5 19.2 20 15 10 5 0 42 7.7 10.0 11.0 11.6 11.7 12.3 17.0 10.3 10.6 10.2 25 20 15 10 5 0
Portfolio USD bond portfolios as at 31 December 2015 Portfolios: $2.7bn AAA % AA % A % BBB % BB and below % Total % Duration months Government issued 31.5 0.1 31.6 17.7 Government supported* 0.7 6.2 0.6 0.3 7.8 16.2 Liquid portfolio Short duration Corporates still favoured Asset backed 10.1 0.3 0.1 10.5 10.3 Mortgage backed agency 4.2 4.2 30.5 Non agency 0.6 0.3 1.9 2.8 12.2 Commercial MBS 3.6 0.3 0.2 4.1 16.2 Corporates 0.9 5.4 17.7 14.8 0.2 39.0 18.6 Total 15.9 48.2 18.6 14.9 2.4 100.0 17.5 *Includes agency debt, Canadian provincial debt and government guaranteed bonds. 43
Portfolio GBP, EUR and CAD bond portfolios as at 31 December 2015 GBP portfolios: 441m AAA % AA % A % BBB % BB and below % Total % Duration months Government issued 41.7 41.7 20.3 Government supported* 18.4 2.7 0.2 21.3 17.0 Asset backed 3.7 3.7 12.4 Corporates 5.9 5.1 13.0 9.3 33.3 15.6 Total 28.0 49.5 13.0 9.5 0.0 100.0 17.7 Governments favoured for duration management Corporates for carry No exposure to Greece, Ireland, Italy, Portugal or Spain sovereign debt Credit and duration to maintain positive yield in Euros EUR and CAD portfolios: 339m AAA % AA % A % BBB % BB and below % Total % Duration months Government issued 34.8 1.7 36.5 46.3 Government supported* 10.9 7.9 0.7 19.5 18.6 Asset backed 1.5 0.1 1.6 11.3 Corporates 3.9 9.4 19.9 8.5 0.7 42.4 14.4 Total 51.1 19.0 20.7 8.5 0.7 100.0 26.7 *Includes supranational and government guaranteed bonds. 44
Business segments Hiscox Retail Hiscox Retail brings together the results of the UK and Europe, and Hiscox International being the US, Guernsey and Asia retail business divisions. Hiscox UK and Europe underwrite European personal and commercial lines business through Hiscox Insurance Company Limited, together with the fine art and non-us household insurance business written through Syndicate 33. In addition, Hiscox UK includes elements of specialty and international employees and officers insurance written by Syndicate 3624. Hiscox International comprises the specialty and fine art lines written through Hiscox Insurance Company (Guernsey) Limited, and the motor business written via DirectAsia, together with US commercial, property and specialty business written by Syndicate 3624 and Hiscox Insurance Company Inc. via the Hiscox USA business division. Hiscox London Market Hiscox London Market comprises the internationally traded insurance business written by the Group s London based underwriters via Syndicate 33, including lines in property, marine and energy, casualty and other specialty insurance lines. In addition the segment includes elements of business written by Syndicate 3624 being auto physical damage, auto extended warranty and aviation business. Hiscox Re Hiscox Re is the reinsurance division of the Group, combining the underwriting platforms in Bermuda, London and Paris. The segment comprises the performance of Hiscox Insurance Company (Bermuda) Limited, excluding the internal quota share arrangements, with the reinsurance contracts written by Syndicate 33. In addition, the healthcare and casualty reinsurance contracts written in the Bermuda hub on Syndicate capacity are also included. The segment also captures the performance and fee income of Kiskadee, further details of which can be found in note 2.3 of the Group s Report and Accounts for the year ended 31 December 2015. Corporate Centre Corporate Centre comprises the investment return, finance costs and administrative costs associated with Group management activities. Corporate Centre also includes the majority of foreign currency items on economic hedges and intragroup borrowings, further details of which can be found at note 13 of the Group s Report and Accounts for the year ended 31 December 2015. Corporate Centre forms a reportable segment due to its investment activities which earn significant external returns. 45
Glossary of terms Binding authority An agreement between a Lloyd s managing agent and a coverholder under which the managing agent delegates its authority to enter into contracts of insurance to be underwritten by the members of a syndicate. Claims ratio Net claims incurred, including IBNR, as a percentage of net earned premiums. Combined ratio The total of the claims, expenses and impact of foreign exchange ratios. Expense ratio Expenses as a percentage of net earned premiums. Funds at Lloyd s The amount of assets, which can be cash, investments or letters of credit, that a syndicate member has to deposit with Lloyd s to support his share of the capacity on a syndicate. The minimum amount is 40% of the capacity owned by the member. Gross written premium Premiums contracted for before any deductions. Group controlled The total gross written premium controlled by the Group including the 27.5% of the Syndicate capacity not owned by Hiscox in 2015 (27.5% in 2014). IBNR Incurred but not reported. An estimate made at the end of each accounting period to cover the expected cost of losses that have occurred but have not yet been reported to the insurer or reinsurer. ILS Insurance-linked Securities. Financial instruments whose value is affected by an insured loss event. Examples include catastrophe bonds and other forms of risk-linked securitization. Incurred loss ratio Paid and outstanding losses as a percentage of premiums. Gross incurred loss ratio is before deducting any reinsurance and net is after deducting reinsurance. Long-tail A term used to describe an insurance risk that has the potential for claims development or new claims to be reported a number of years after expiry of the term of the policy. 46
Glossary of terms MGA Managing General Agency. An individual or business entity appointed by an insurer to solicit applications from agents for insurance contracts or to negotiate insurance contracts on behalf of an insurer. Member or Name The companies or individuals who own the capacity of a syndicate and who belong to the membership of the Society of Lloyd s. Net premiums earned Premiums received after the cost of reinsurance and adjustment for unearned premium. Unearned premium covers the future period of risk of an insurance policy. Net premiums written Premiums contracted for after deduction of reinsurance. Open year A year of account of a syndicate which has not been closed by Reinsurance To Close (RITC). RITC usually occurs at the end of the third year. A year of account can be left open beyond the third year if the extent of the future liability cannot be accurately quantified. Qualifying quota share These are quota share reinsurance policies, which Lloyd s allow in certain circumstances, that enable a syndicate to write gross premium in excess of its capacity. Reinsurance to close RITC The reinsurance to close comprises a premium payable by the closing year to the members on the next open year of account and a contract which transfers the liability for all claims in respect of the closing year to the next open year. Run-off account At Lloyd s, a year of account which is kept open after the date on which it would normally have been closed. Stamp capacity The volume of business measured in gross written premiums net of acquisition costs underwritten by the group through its managed syndicates at Lloyd s of London. Subrogation The right of the underwriter to stand in the shoes of the insured and take over the Insured's rights, following payment of a claim, to recover the payment of an incurred loss from a third party responsible for the loss. It is limited to the amount of loss paid by the insurance policy. Syndicate capacity Also referred to as the stamp. The maximum amount of business that a syndicate in Lloyd s can write per year, aggregated from all its members. 47