Hiscox climate report 2018 Hiscox, the international specialist insurer, is headquartered in Bermuda and listed on the London Stock Exchange (LSE:HSX). There are three main underwriting divisions in the Group – Hiscox Retail (which includes Hiscox UK & Europe, Hiscox Guernsey, Hiscox USA and subsidiary brand, DirectAsia), Hiscox London Market and Hiscox Re & ILS. Through its retail businesses in the UK, Europe and the US, Hiscox offers a range of specialist insurance for professionals and business customers, as well as homeowners. Hiscox underwrites internationally traded, bigger ticket business and reinsurance through Hiscox London Market and Hiscox Re & ILS. For more information please visit www.hiscoxgroup.com.

2 Introduction 3 Risk analysis 14 Informing public policy 18 Supporting customer climate awareness 24 Incorporating climate change into investment strategies 30 Reducing the environmental impact of our business operations 42 Reporting and being accountable 46 Our progress 3 Risk analysis 14 Informing 18 Supporting 24 Incorporating 30 Reducing the 42 Reporting public policy customer climate change environmental and being climate into investment impact of accountable awareness strategies our business operations

Welcome

We are in the business of risk, To have achieved our CO2e emissions and in 2017 we saw the devastation reductions targets three years early that can be caused by those risks is immensely satisfying, but so was associated with Mother Nature. For our continued work to help improve our customers affected by Hurricanes the availability and affordability of flood Harvey, Irma, Maria and Nate and the cover, particularly through our product Mexico earthquakes, whose homes and development in Hiscox London Market businesses were destroyed, we expect and Hiscox Re & ILS. Most notable to pay out up to US$225 million though was to see our core approach in claims. It is what we are here for. to climate risk and resilience pay off, our approach enabled us to make a Climate related risks and natural small profit even in an historic year for catastrophes cannot be tackled by one natural catastrophes. business alone and it is often speculated that the frequency and severity of these While this report records our progress Michael Schenstrom events will only increase over time, each year on climate changed-related Director of Group and Finance Operations due to climate change. issues as well as our engagement with Hiscox the ClimateWise programme and our Although this is a global challenge, implementation of its principles, it is Hiscox has its part to play. Signing up also much more than that. It outlines to global agreements such as the Paris our commitment to doing the right thing; Accord, being members of relevant as a business, as an employer, as an organisations and participating in investor, and for our customers. That collaborative work on climate change commitment lies at the heart of Hiscox. are therefore key to our approach. This includes the work we do with I hope you find it useful. Lloyd’s of London, the Association of British Insurers and through ClimateWise. You will hear more about each of these in the following pages. Looking back at what we have achieved over the past 12 months, there are three things I am most proud of.

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Introduction

Summary Climate change has a real and relevant impact on our core business of insurance and reinsurance. We insure individual customers, businesses and other insurers for damage caused by a range of risks, including climate change-related effects and natural catastrophes. The consequences of climate change include the fact that an increased frequency and severity of major weather events can impact on the availability and affordability of insurance cover, as well as the profitability of (re)insurers. This report records our engagement with the ClimateWise programme and our implementation of its principles. We are responding to climate-related risks by improving our management of such risks across our business by: DDconducting research to better understand the risks of climate change and the impacts on the products we offer and to support better forecasting of future weather patterns; DDworking to inform national and international policy in order to tackle climate change and develop economies which are resilient to climate change, predominantly through relevant industry bodies and associations; DDcommunicating with our customers and encouraging them to mitigate certain climate-related risks where possible and adapt to other risks; DDstudying when and how to incorporate climate-related risks into our investment strategies; DDreducing the environmental impacts of our business operations; DDconsidering climate change risks in our business strategies; and DDreporting on our actions to manage the results of climate change across our business. Collaboration We work closely with the following: DDLloyd’s of London (Lloyd’s). Hiscox is one of more than 50 members of this specialist insurance and reinsurance market located in the City of London. Led by expert underwriters and brokers who cover more than 200 territories, the Lloyd’s market develops the essential, complex and critical insurance needed to underwrite human progress. The Lloyd’s Corporation supports this market, as an independent organisation and regulator protecting and maintaining the market’s reputation, whilst also providing services, original research, reports and analysis to the industry’s knowledge base. DDThe Association of British Insurers (ABI). The ABI is a not-for-profit organisation representing the UK’s insurance sector and has over 250 member companies including Hiscox, accounting for over 90% of the UK insurance market. They use their expertise and experience to contribute to public policy debates, publish research reports, promote the highest standards of service, conduct and support the industry. DDClimateWise. Representing a global network of leading insurance industry organisations and convened by The Cambridge Institute for Sustainability Leadership (CISL), ClimateWise helps to align its members’ expertise to respond to climate change. The six ClimateWise principles provide a framework for insurance companies worldwide to set out how they will build climate change risks and opportunities into their business operations. ClimateWise members work with CISL to help close the climate-risk protection gap and commission research through s CISL’s Insurance Advisory Council.

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1. Risk analysis

Summary DDan increase in wildfire frequency Hurricanes Harvey, Irma and Maria Hiscox underwrites a diversity of risks and size; We are actively working on updating that are affected by climate variability, DDpotential changes to the path the Hiscox view of risk (HVOR) on so it is essential that we understand of European winter storms; the back of the Harvey, Irma and as much as possible about climate risks DDwindstorms; Maria (HIM) events of 2017. Further and that we integrate consideration of DDtornadoes; enhancement of the HVOR is a natural these risks across our business DDsevere convective storms. evolution of our modelling approach activities. Climate change makes the that is necessary to maintaining and Catastrophe risk models produce results problem of modelling climate hazard improving underwriting performance perils more difficult and uncertain. by calculating the hazard (using factors of the natural catastrophe exposed such as wind speed, ground motion business across the Group. Hiscox is at the forefront of supporting or water depth), defining the portfolio internal and external research on climate, of assets involved (building types, value Key personnel weather and catastrophe patterns. and contents), calculating the damage A number of key experts have joined Results are shared both internally and (to buildings, contents, business the Hiscox team in the last couple through our long-standing collaborations continuity, etc.), applying financial of years, and together with Executive with other organisations and incorporated structures (deductibles, reinsurance Board members, participate in into our business activities. In particular, layers) and finally estimating loss (to international events. Hiscox has a strong culture of using insurers and reinsurers). climate risk modeling as an essential aid Shree Khare, Group Head of Catastrophe to the assessment of current and future In order to identify and manage Research at Hiscox, spoke at the risks, and as a key contributor to our business risks, we have developed industry ILS conference last October business strategy. a risk management framework, which 2017 in Bermuda on modeling and we regularly review and improve in pricing US flood risk. Shree is participating Results of research and business light of the changing risk environment in a Telegraph-sponsored panel session analysis are integrated into the activities and evolving best practice on risk on the use of satellite data in industry of our underwriters. A large part of management. Our risk management in September 2018 where he will Hiscox’s pricing, capital, reserving and framework is designed to oversee represent the insurance industry reinsurance models are underpinned by a culture of innovative and viewpoint. He will also attend the Aon our catastrophe research and modelling prudent underwriting. analytics insight conference this July activities, as well as by our customer in Chicago on behalf of Hiscox. and claims data. In addition to the Hiscox Board and its committees, the risk management Hiscox CEO Bronek Masojada 1.1 Research on climate risk gave a number of interviews and Hiscox internal modelling expertise framework includes several Group-wide and local forums focusing on specific comments on the unprecedented Hiscox continues the commitment run of natural catastrophes in 2017 given within our Group environmental risk types. The framework is supported by a central risk team. and spoke about their effect both policy that ‘we will invest in research on Hiscox and on the insurance to better understand the risks Natural catastrophe risk is reviewed industry generally. associated with climate change and at least quarterly by the natural changing weather patterns and catastrophe exposure management In particular, he highlighted Hiscox’s incorporating the results into our group, led by the head of underwriting approach to risk which allowed it to insurance products and services’. risk and reinsurance and made up from increase its resilience ahead of these senior representatives of the catastrophe events and their associated losses. Examples of climate-related events Bronek also continues to be a Board which generate potential risks for our modeling team, members from member of the ABI. business include: businesses such as London Market, DDa potential decrease in the number Re & ILS, and Retail, the risk team, Collaboration with the external of hurricanes but an increase and the chief underwriting officers risk-modeling community in the frequency of severe from across the company. See section In 2017-18, we have continued to develop hurricanes, due to an increase 6.1 for further information on how our long-standing collaborations with in sea temperatures; climate risk is incorporated into strategy leading external modeling companies, DDthe changing nature of flood risk; through our reporting structures. including on the following initiatives.

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DDWe are working with a wide variety few weeks of each other, will be analysed time, with new regulators (the FCA and of model vendors and/or data and studied for years to come in order to PRA replacing the FSA) and a different providers in the market. Current update risk and loss modelling. Other regulatory framework with Solvency II. high priority projects concern seminars by WRN have covered advances The dry run scenario tested our integrating new US flood stochastic in hail and storm research in the UK. response to an unprecedented cyber models into our systems. We’re In March 2018 WTW also launched event, a highly destructive hurricane, also working on integrating various the Global Ecosystem Resilience Facility one of the largest ever stock market flood map data products to (GERF), to research marine ecosystems declines and a major reinsurer default improve our overall approach especially Caribbean coral reefs, with consequent delays in reinsurance to pricing individual flood risks. incentivising environmental stewardship payments – all resulting in global DDWe engage with the broking and providing innovative insurance insurance losses of approximately community, which has their own protection to mobilise development $200 billion, the largest in history. research and modeling expertise, finance, strengthening their resilience Full details of the exercise and the and this year together we are and supporting coastal communities. conclusions draw from it can be found in the resulting report, ‘London Market addressing a set of key questions We have strong links with the Lighthill looks ahead: Preparing for the next related to hurricane activity and the Risk Network which aims to enable big insurance event.’ modeling of Harvey, Irma and Maria interaction between the scientific events of 2017. Our plan is to liaise community, industry and government. This exercise proved to be timely. with the broking community on Our Group Head of Catastrophe 2017 will be remembered as one of the a regular basis in future to discuss Research liaises with them to encourage most costly years in history for natural various aspects of research, sharing of expertise, and sponsor catastrophes as a result of hurricanes mostly related to climate risks. projects, for example updating data Harvey, Irma, Maria and Nate, Mexico DDWe now have a consulting in open-source models. earthquakes and California wildfires. The total cost of these events to the arrangement with a leading The Network, incorporating the industry is estimated at in excess scientist in the US on hurricane Insurance Intellectual Capital Initiative of $140 billion, and Hiscox established activity. This piece of consulting (IICI) is an all-encompassing organisation net reserves of $225 million to cover work is being used to review our facilitating and enhancing knowledge the expected losses from them. approach to specifying hurricane transfer into business from academic, activity rates in our modelling, government and commercial experts Recent Hiscox publications and try to better understand what at the forefront of risk-related research. Hiscox Global Insight online published are the implications of the active It is funded by the industry and managed a number of articles covering a range 2017 season. by a core team of professionals from of climate and catastrophe-related We continue to work with the Willis the (re)insurance industry. topics including: DDhow combined large events like Research Network, the world’s largest 1.2 Supporting weather and hurricanes Harvey and Irma collaboration between public science catastrophe forecasting by others can create secondary industry and the financial sector. Drawing on We publish our research where problems dealing with large global excellence in weather and other appropriate and participate in industry numbers of claims, for example modeling, the WRN has a membership events and other collaborations to share due to a shortage of US loss of around 50 global research institutions. what we have learnt. We also inform and adjusters; and solutions for how The WRN funds multiple research update customers, investors and policy- this could be fixed; programmes, looking at a variety of makers by a number of communication DDadvances in computer modeling natural hazards such as global climate, channels. For more details on our of wildfires and increasing numbers flooding and hail damage, as well as approach to communications please of larger fires affecting the US earthquakes, volcanoes and landslides. see section 2 for policy-making and market especially in California, Outputs include data, models, section 3 for customer communications. applications, peer-reviewed journal causing some insurers to withdraw. articles, financial instruments and In January 2017 we worked with other This is an analagous situation to conferences. The WRN recently merged insurers, brokers, reinsurers, Lloyd’s, the recent gap in US and UK flood rating agencies, regulators and HM insurance markets and presents with a US company to form Willis Treasury to collectively test the London a similar opportunity to create a new Towers Watson (WTW). Market’s ability to withstand major market solution, similar to FloodRe In November 2017, the WRN held a catastrophes through a ‘dry run’ or FloodPlus, for wildfire insurance; seminar with presentations on severe exercise. Hiscox was proud to lead this DDwhy in recent years fewer convective storms, tropical cyclones industry-wide initiative, as we felt it had hurricanes have made US landfall, and inland flooding, which was attended been many years since the industry and which global and regional by some Hiscox senior modelling staff. had experienced a market-turning event climate factors changed in 2017 The run of major hurricanes HIM within a and that much had changed during that to create Harvey and Irma;

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DDnew research into earthquake DDhe also attended an industry-wide industry from Superstorm Sandy, which prediction and how one earthquake ILS conference in Bermuda to struck the US, Caribbean and Canada can affect the likelihood and size discuss natural catastrophe risk in 2012. The study also restates research of others occurring in nearby modelling developments and published in earlier Lloyd’s reports, faults or even around the globe technology advances, and how that climate change-related rises in by relieving or building pressure these support innovative products sea-level caused bigger surge losses in other faults. such as FloodPlus and FloodXtra, during Sandy, but that coastal wetlands to close the insurance gap and helped protect other areas. In early 2018 we published our first provide benefits for both the renovations and extensions report Lloyd’s research on industry and customers. 2018, drawing on insights from a survey resilient infrastructure of 1,200 homeowners, 100 UK-wide A number of industry commentators In spring 2018 Lloyd’s published the estate agents and over 400 local council and more general media channels preliminary Innovative Finance for planning permission records. covered the launch of Hiscox’s FloodXtra Resilient Infrastructure report, drawing product in October, which reinsures together findings from the first innovation The report documents the trend amongst personal lines carriers, using interviews lab event in January run by Lloyd's homeowners towards renovation, rather with CEO Bronek Masojada. As flood with The Centre for Global Disaster than moving house, and found that insurance deregulates, the private Protection, supported by Hiscox staff installing energy-efficient technologies market has an opportunity to provide and other industry experts. was an increasingly popular option. more customers with flood cover, This is now the most common renovation, The CGDP was launched by UK Prime hence FloodXtra was developed included in 18% of projects, rising to Minister Theresa May in July 2017 with in collaboration with US carrier partners. 20% amongst millennial homeowners. the goal of working with governments The report looked at the value different The flood insurance protection gap is to strengthen pre-disaster planning, renovations can add, finding that significant and as a peril it is the single catalyse innovative finance for resilience installing solar panels can add 0.5% to most common natural disaster loss and use risk financing tools like insurance the value of your home. The report was in the United States. But still under 12% to protect people and speed response widely shared with the general media of homeowners have flood insurance and recovery. and insurance brokers and generated coverage. FloodXtra complements The Centre brings together partners coverage in the FT, The Independent FloodPlus, and helps insurers address including the UK Government, the and property trade press. this coverage gap in areas underserved World Bank, civil society and the private by the US Government-backed NFIP Shree Khare discussed the impact of sector with the shared goal of enhancing 2017’s run of hurricanes in the US and Recent external output the financial resilience of developing Caribbean in early 2018: Hiscox membership of, and participation countries to climate and disasters. The DDin ‘Insurance Linked’ he discussed in the work of, external bodies is another Centre is funded by the UK Department the historical problems with the important part of our strategic approach for International Development (DfID). US state flood insurance program, to conducting and sharing research. The working session had more than (the NFIP) and why this market Recent activities and events include 50 participants from across the insurance, is now being opened to the private the following. investor, engineering, humanitarian insurance market. He discussed Lloyd’s stranded assets report and development communities. how new products such as Lloyd’s published a key report ‘Stranded FloodPlus and FloodXtra from They worked from real-world use cases, assets: The transition to a low-carbon Hiscox can fill the insurance gap identifying, developing and stress testing economy’ in autumn 2017 which by providing better flood risk possible solutions. It was supported recommended investors, but also models and more accurate pricing, by a team of experts providing insurers should evaluate their assets’ allowing more households and technical analyses. or clients’ exposure to effects of climate businesses to be covered correctly. change and how these might affect their They can also cover losses which value and risk. Hiscox is not involved in are not currently served under the the resulting divestment by Lloyd’s from NFIP, and benefit from Hiscox’s the coal industry, as a small investor, expert customer support during but considers stranded asset risk as the claims process; part of its regular investment decision. DDin a magazine article for ‘Trading The insurance risks we have noted for Risk’ he commented on the need each industry related to climate risk for diverse views of risk and models, are considered through our normal risk which had been highlighted by modelling and pricing processes. the differing large loss estimates coming from the industry after In 2017 Lloyd’s also published a case Hurricane Maria; study on lessons learnt by the insurance

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As flood insurance deregulates in the US, there is an opportunity to provide more customers with flood cover.

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Four main ideas emerged from the lab lower risk bond investors bear. experiences to analyse what worked to improve resilient infrastructure, the This idea has been identified well and what had not worked as well first of which is most relevant to Hiscox. previously elsewhere, but more as intended. Whilst the after effects work is required to bring the of the storms in terms of claims and DDInsurance-linked loan packages. product concept to market. clear-up are still continuing, a number This would explicitly integrate risk of conclusions and lessons could transfer solutions into (concessional) DDResilience service company already be identified. loans provided by international (ReSCO). A ReSCO would pay financial institutions. Such loans for and implement resilience DDHarvey was not a typical hurricane should only be spent on measures upfront, recouping its and showed that there is still infrastructure where resilience has investment from the risk-based a large flood insurance gap for US been explicitly considered and built insurance premiums by reducing homeowners and renters, leading into the design. Resilience would volatility. The idea is based on to a large difference between the be incentivised by reduced upfront energy service companies who estimated damage and actual costs of insurance and/or offering design, finance and take the insured claims. The flood models more favourable lending terms (or a performance risk of energy also underestimated Harvey’s grant element) upon demonstration efficiency investments, sharing impact. Out of date federal flood that identified measures had been the energy cost savings they maps have led to poor pricing by delivered. Continued availability of generate between themselves and the NFIP and to planners allowing those terms would be conditional on the asset owner. ReSCOs would new buildings in flood-prone evidence of adequate maintenance. overcome the unwillingness of areas. Risk aggregation also asset owners to bear the upfront needs further research. Multiple DDResilience Impact Bond (RIB). costs from resilience measures. risk types may interact from one The RIB concept would explicitly First proof of concept may need event, for example wind, flood and transfer the risk of providing resilient to be delivered by a development storm surge damage, as well as services to private investors. partner or a public private many classes of customer being Investors would provide upfront partnership. Donor support would impacted and multiple hurricanes financing to ensure that critical be required in scenarios where reducing the ability to respond to services requiring infrastructure insurance take-up is very low. claims as effectively as normal. (e.g. education, health, power) are Further work is needed to develop more resilient. Returns would come DDIrma was more typical and models and test this idea. through payments made by the made more accurate predictions of donor but with returns varying Finally, the report includes a number of losses, but this hurricane showed according to either the on-going recommendations for both policymakers up shortcomings in how different provision of resilient services, or and the insurance industry, and a types of peril and variations in other conditions that aim to proxy number of continuing activities which exposure are modelled and priced, this. One example might include include inviting commentary on the initial especially for yachts. Better adequate natural catastrophe risk report, and a final report due in June 2018. contingency plans and catastrophe insurance coverage. This idea response plans for more types of Hiscox is a member of the Disaster Risk builds on the emerging practice of events are required and more work Facility (DRF) which was launched by development impact bonds (DIBs) is needed on what constitutes Lloyd’s in 2015, recognising the need which DfID is already exploring a safe harbour. for dedicated collaboration in the Lloyd’s as an innovative way to leverage market for the assistance of countries DDOne of Maria’s main effects was private sector investment and in terms of disaster relief financing. in demonstrating issues with delivery expertise in pursuit of It is now a consortium of seven Lloyd’s getting loss adjusters and repair development goals. Syndicates, pooling resources with teams to remote island locations. DDResilience bond. A catastrophe a maximum capacity of $445 million. This was exacerbated by Maria bond (cat bond) which takes occurring soon after the previous Hiscox and the DRF will investigate account of the impact of resilience two hurricanes, the clean-up from the Resilient Infrastructure results measures. In the event of an eligible which absorbed a lot of mainland separately and will work on helping disaster, investors lose all or a resource, and by the damage to developing countries close the portion of the capital value of power and transport infrastructure. insurance gap, especially in the the bond, which is transferred Together these slowed down field of disaster relief financing. to the bond sponsors. Resilience recovery from Maria, but also bonds also account for the impact Lloyd’s report ‘After the Storms’ prompted innovative approaches, of resilience measures through In June 2018 Lloyd’s released a report for example the use of satellite reducing bond interest payments on the current status of the insurance imagery and social media reports once these measures are industry after the three large hurricanes to assess damage and keep implemented. This reflects the of 2017, drawing on members’ up-to-date with developments.

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The general conclusions were that They also responded to the TCFD designed with flood risk protection climate change will only increase the Recommendations on climate-related in mind. risk from individual hurricanes. Having risk disclosure issued in summer 2017, DDIn April 2018 the ABI analysed a cluster of storms close together also welcoming them but also highlighting progress towards sustainable challenged the insurance industry in areas where further work is required finance and insurance in their new ways, absorbing an increased level to assist implementation. blog on the UK Green Taskforce of available resource and likely raising ClimateWise continues to align its Report. They summarised the costs as a result, both from delays and reporting principles to TCFD over time. likely adoption of the TCFD from the difficulty of ensuring resources More information on the Hiscox and recommendations. They pointed are available where needed. ClimateWise position on implementing out separately that the Solvency More work on modelling different TCFD recommendations and our II insurance regulation needs hurricane types is needed. Another most recent involvement in industry modification to support new improvement might be to start the discussions can be found in section 2.1 sustainable infrastructure, which response as events are still unfolding, in the subsection on ‘Climate-related currently insurers are prevented identifying the event type and activating Financial Disclosure’. from investing in or supporting due to its fluctuating cashflows. contingency plans. Lessons had been ABI learnt from Superstorm Sandy but all We are a company member of the The ABI also typically issues alerts areas, especially yacht insurance, have Association of British Insurers (ABI). ahead of extreme weather events, for improvements to make. ABI publications this year on the risks example flood guidance from the Flood Hiscox will be reviewing this report for of climate change include the following. Forecasting Centre on its website. These alerts are issued in advance of specific any extra insights over and above our DDThe ABI used the 30th anniversary weather predictions and give advice own experiences in the last year. of the great Storm in the UK in about different types of flood risk from October 2017 to highlight recent We are currently looking at how surface water, rivers, groundwater and research showing that climate we evolve our response in UK claims, coastal flooding. particularly during surge events, to change in the UK is likely to mean include the use of drones, apps and a higher number of more expensive 1.3. Tailoring the Hiscox online reporting. We are also reviewing windstorms. The research also approach to risk our contingency plans for how we showed that these extra impacts Hiscox is often referred to as a Lloyd’s respond to UK weather events and were likely to be concentrated business, which reflects where we came social media is a tool that we will look in specific regions of the UK. from, but not our business today. Rating agencies looked at us in the same to use to both communicate with our DDIn November at an industry category as pure catastrophe writers, brokers and customers and gather conference the ABI also raised without giving credit to the benefits of information on the event. the need to keep looking at diversification that our now substantial how flood risk changes with ClimateWise retail business brings. In 2017, S&P climate change and lack of flood ClimateWise publishes a range of reviewed Hiscox and moved us from infrastructure development, research. The compendium on disaster a high risk category, to a medium risk as well as long-term plans for a risk transfer has been developed category. We hope that they, and successor to the Flood Re scheme. through collaboration between industry the other rating agencies, feel their Earlier in summer 2017 they also and academia to document risk transfer judgement is vindicated with Hiscox produced a case study information initiatives in low and lower-middle being profitable in a year of $140 billion sheet on Flood Re as an example income economies. It was updated of catastrophe losses. over a period of years and captured of insurance innovation. proposed schemes, public, private DDThe new Hiscox office in York or mixed schemes and different types appears as part of another ABI of indemnity and index-based insurance case study on regional growth. or insurance-linked schemes. Hiscox runs a business club which Much of the research is made publicly currently gives over 70 small businesses access to free city available on the ClimateWise website. centre office space in the Hiscox ClimateWise issued press releases York office. By offering services this year commenting on the such as video conferencing, we climate-related catastrophes of 2017, can reduce the carbon footprint particularly how the Harvey, Irma and of,and provide vital support Maria hurricanes exposed the insurance to, local small businesses and protection gap for many home and entrepreneurs.The building itself business owners. sits by the River Foss and was

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Hurricane Irma

Hurricane Harvey

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Our core business is to take risk where decisions are checked for compliance for many UK and US properties that it is adequately rewarded, guided by with our latest policy. Real-world claims would otherwise have been excluded. a strategy that aims to maximise return data is monitored, and results fed back We have also been able to launch on equity within a defined risk appetite. into the system to close the loop and a new US reinsurance product, The Group’s success depends on how continue to improve accuracy. FloodXtra, that complements FloodPlus well we understand and manage our How we use risk models in the US and builds on our innovation in exposures across key risk types. These Hiscox licenses a number of different this area which begins with Flood Re in consist of strategic risk, insurance natural catastrophe risk models across the UK. See section 3.1 and section 2.1 (underwriting and reserve) risk, market the globe for a variety of peril regions. ‘Working to Increase the Availability risk, credit risk, operational risk, We take the philosophy that the out of Insurance’, for more. As another regulatory, and legal risk and Group risk. of the box models are only a starting example, our findings from catastrophe Our collective risk knowledge informs point for modeling the risk. research have directly informed every important decision we make. alterations to our US hurricane A significant proportion of the Hiscox accepts that all theoretical models (see section 1.1), in regard to research relates to trying to understand research outcomes and models of both hurricane landfall around the deficiencies in the models, and figuring climate-related risks may have flaws. US coastline, and perceived model out how to adjust the models to improve We aim to minimise these effects underestimation of losses in specific them. This procedure is followed for all through good management. regions in the US, with direct effects out of the box models, and the resource on our pricing. Natural catastrophe risk is reviewed applied to this process matches the at least quarterly by the Natural materiality of the model from a business Recent studies into Atlantic hurricane Catastrophe Exposure Management point of view. We also blend alternative frequencies and Japanese tsunami risk Group. They look in detail at the latest models together, using factors reflecting are better informing the pricing teams. information on natural catastrophes our overall judgements of the (adjusted) The most recent and material changes (e.g. hurricanes, earthquakes) and model quality. to the HVOR are related to our evaluation recommend which model to use of the new North American earthquake For certain key peril regions such for which phenomenon (and how each models late last year. as US wind and flood, climate change model should be adapted to bring it processes are having an impact. Capital management closer to real world conditions) and they The most material example of this Hiscox analyses current levels of risk identify new areas of risk research. would be our adoption (into the HVOR) across the portfolio, compares this All changes to modeling policy and of views of hurricane activity that differ to our a tightly defined appetite for all of our research prioritisations and from the long-term baseline (obtained risk and manages risk by purchase results are signed off and authorised by averaging over the entirety of reinsurance or by holding of an by this group, decisions are recorded, of historical data). appropriate amount of capital. The and models are adapted to reflect Board monitors the capital strength Using results to inform levels policy changes. of the Group and ensures its insurance of pricing, capital and reserves carriers are suitably capitalised for Thus, we develop our own HVOR Pricing regulatory and ratings purposes, taking (Hiscox view of risk). This is constructed The composite result of all this research into account future needs including through a complex combination of the into climate related risks, as expressed growth where opportunities arise. results of our own research, comparison in the HVOR, sends a direct signal to our with actual loss data, multiple factor underwriters about Hiscox insurance The Group monitors its capital analysis, use of multiple vendor modelling pricing. As the adaptations agreed requirements based on both external systems, incorporation of conservatism by the Natural Catastrophe Exposure risk measures, set by regulators and in areas where we believe the models Management Group are used to update the rating agencies, and its own internal could be deficient and adjustments the actual models that the underwriters guidelines of risk appetite and compares to take account of new scientific use, so pricing guidance on their screens this with available capital. We held understanding and new regulatory changes in order to inform their work £1.89 billion available capital at requirements, with the aim of generating and forms an important factor in their 31 December 2017. an optimal model of real world risk. decisions on what insurance they can As the ability of the Group to attract offer, and at what price. The HVOR defines the most significant business, particularly reinsurance, climate change-related risks and One example of this in action is how is dependent upon the maintenance attempts to account for the latest better flood data and modelling has of appropriate financial strength ratings scientific understanding related to the informed Hiscox’s pricing calculations. from the leading rating agencies changing climate. We regard the priority This has enabled us to provide tailored (including A.M. Best, S&P and Fitch) for study in 2018-19 will continue to property insurance based on the risks and as each of these measures capital be US flood risk. The Hiscox governance identified on an individual location adequacy, good capital management process ensures that underwriter basis, helping to provide flood cover is essential.

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Realistic disaster scenarios The table below presents selected realistic disaster scenarios based on our book of business in force at 1 January 2018 and industry data. Given the nature of the risks underwritten, the loss estimates may be materially different from those that arise depending on the size and nature of the event.

Gross loss Net loss Net loss as a % Industry Return Gross loss Net loss as a % of as a % of of insurance loss size period US$m US$m total equity total equity industry loss US$bn years Gulf of Mexico windstorm 1,709.3 201.1 72.2 8.5 0.2 107 80 Florida windstorm 1,339.5 179.8 56.6 7.6 0.1 125 100 European windstorm 588.6 79.9 24.9 3.4 0.3 30 200

Also, as a Bermudian registered holding aside for our exposures, this could affect not settled at a given date, whether company, the Bermuda Monetary the Group’s earnings, capital and future. reported or not, together with the related Authority (BMA) regulator requires the When underwriting risks, we estimate claims handling costs. Group to monitor its Group solvency the likelihood of them occurring and their As part of our risk assessment, we capital and determine the minimum cost. Our actual claims experience could stratify the loss reserves based on the capital required to remain solvent exceed our loss reserves, or we may inherent nature of the business class, throughout the year. From 2016 need to increase levels of loss reserves. the size of the class relative to the total year-end onwards, the Group has been The provisions we make to pay claims reserves, exposure to adverse market required to publish a financial condition reflect our own experience and the development, sensitivity to significant report (FCR), which sets out details of industry’s view of similar business; assumptions and the degree of prior the measures governing the business historical trends in reserving patterns; year reserve movement. operations, corporate governance loss payments and pending levels of framework, solvency and financial In order to challenge management’s unpaid claims; and awards as well as performance of the Group. assumptions and methodologies, potential change in historic rates arising we are assisted by our actuarial Our calculation of required capital from market or economic conditions. specialist team members who perform includes an assessment of catastrophe Our provision estimates are subject to independent re-projections on selected risk and, as the largest driver of our rigorous review by senior management classes of business, particularly capital is underwriting risk, the accuracy from all areas of the business, as focusing on the largest and most volatile of our models is critical. Our recent well as from independent actuaries. reserves as these are considered research on floods and hurricane The relevant boards will approve higher risk. For these classes, frequencies have all directly influenced the amount of the final provision, we compareour independent claims our capital management decisions. on the recommendation of dedicated reserve estimates to those booked by The table above shows examples given reserving committees. management and seek to understand in the latest Hiscox Annual Report and any significant differences. Accounts of natural catastrophe loss The Group maintains a prudent estimates based on Hiscox’s exposure approach to reserving, to help mitigate Catastrophe reserves have an inherent as at 1 January 2018. the uncertainty within the reserve place in these calculations and in the estimates. We try to take a prudent resultant amount of reserves held. Hiscox delivered a profit before tax view when we create these reserves, In addition, we also test estimates of in 2017 excluding foreign exchange but as with many matters in insurance, catastrophe claims against specific of £93.6 million (2016: £202.1 million) uncertainties remain. notifications received confirming event in the most expensive year for natural data. See Hiscox Annual Report and catastrophes ever, as hurricanes, The prudence of our team in reserving Accounts 2017 for further details. earthquakes and wildfires battered prior catastrophes and individual claims insurers’ balance sheets. A solid was demonstrated with the release of investment return and the balance in £252 million in 2017 (2016: £213 million) our business mix sustained us. Good from prior years. Shocks in insurance underwriting and profits from the retail are normally negative, so these businesses countered the volatility outcomes demonstrate the positive of the big-ticket lines. effects of our past management of risks. Reserves risk The methodologies and assumptions We make financial provisions for unpaid utilised to develop IBNR reserves claims, defence costs and related involve a significant degree of judgment expenses to cover our ultimate liability as there is generally less information both from reported claims and from available on the related claims. The ‘incurred but not reported’ (IBNR) liabilities are based on the estimated claims. If we do not put enough money ultimate cost of all claims incurred but

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The Caribbean hurricanes This review and research process is and is having success implementing The Caribbean Catastrophe Risk continuous. For example, to enhance insurance products which respond to Insurance Facility (CCRIF) was our ability to model and price risks these new requirements. designed as a regional catastrophe including climate-related ones, the By providing the peace of mind to clients fund for Caribbean governments, to research team is currently working that the new technology is properly limit the financial impact of devastating on active projects related to two insured, Hiscox is helping to facilitate hurricanes and earthquakes by quickly cutting-edge technologies, machine the expansion of measures to combat providing financial liquidity when learning and data augmentation. climate change at all levels of the market; a policy is triggered. The 2017 hurricane season brought devastation in the Encouraging new technologies from private households to small Caribbean but the CCRIF has already for tackling climate change businesses and larger institutions. At Hiscox we both adopt appropriate paid out. We actively look to develop products new technologies ourselves and for professional indemnity related to By supporting the CCRIF, Hiscox is support customers to do so where UK emerging industries which includes contributing to help developing countries they are beneficial. close the insurance gap and is willing consultants working in areas such as to do more in this area. Hiscox feels that For example, we have changed our energy efficiency and environmental this year’s amount, though essential, wording in our high-value household protection. In the past, consultants in is small compared to the economic product to allow clients to use renewable the environmental and ecology industry losses sustained by the Caribbean energy as a replacement energy source throughout the UK were provided with countries, and is willing to work towards in their home should the original energy public indemnity insurance through reducing this difference. The most source be damaged. We will provide the general Hiscox ‘miscellaneous’ important part of the scheme, because up to £5,000 for them to replace energy professional indemnity (PI) product. sources with more environmentally it is based on a parametric basis, is that However, our Head of Emerging friendly alternatives (e.g. solar power, losses are paid quickly after the disasters PI identified this as a growing area wind turbines). This has increased our happen, which is when governments of new business which led to the value offering to our more environmentally need the funds the most. developmeng of a specific PI product aware clients. 1.4 Evaluating new technologies for these consultants, known as ‘green for tackling climate change In addition, we have refreshed one consultants PI’. Some of the key cover Hiscox recognises the opportunity of our home insurance products to enhancements included are cover to develop products to help manage clarify that it does cover environmental for survey work, defence costs for the risks of new technologies for installations, such as solar panels, investigation under the Environmental tackling climate change. Our emerging for damage as a result of an insured Protection, Health and Safety, business team, working through the Risk incident and lost revenue which would and Corporate Manslaughter Acts Committee of the Board, have used the have been generated (up to certain and Pollution Cover. We currently findings of the catastrophe modelling limits). This is a positive move and, in have over 1,000 policyholders within team and the emerging risks team to addition to attracting new customers, the sector, including those involved identify new technologies for tackling existing customers are switching to take in anaerobic digestion, carbon climate change and have gone on to advantage of the additional cover. management consultancy, ecology, identify appropriate changes to, or See section 3.3 for further details energy assessing, environmental the introduction of new, insurance about settling claims more sustainably. consultancy and environmental impact assessments. products. See section 6.2 for a full Insuring new technologies description of the Hiscox structure for tackling climate change Pilots of new products for risk management and how results Hiscox recognises that, when new for homeowners are communicated. technologies enter a market, effective As mentioned in section 1.2, Hiscox’s Hiscox has reviewed new technologies insurance against risk is an important recent report on home renovations and for their climate-related aspects, factor in facilitating their take-up. It has extensions found that installing energy- from fracking (hydraulic fracturing the dual effect of enabling the growth efficient systems and extending houses forcing out natural gas from shale of new direct business customers, is becoming a popular alternative to rock) to offshore wind farms and has whether through existing businesses moving house. This leads to more water started looking at carbon capture moving into a new sector of the pipes and more complex systems, which developments. In addition, we have market or through encouragement together with modern plastic plumbing analysed domestic and business use and facilitation of new business start- has created a 20% rise in claims for of wind turbines, solar panels, etc. ups, and of growth of home insurance domestic Escape of Water events. In We have used this analysis to inform customers. Hiscox has identified a the UK Hiscox is working together with our home insurance policies and to growing customer base for insurance HomeServe to pilot LeakBot with our update our insurance products, products and services related to domestic customers, an internet-enabled based on these new technologies. environmental risks and climate change product which monitors the water

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Hiscox UK is working together with HomeServe to pilot LeakBot. 1.5 Planning for the future In 2018-19 we plan to: DDcontinue to research US flood risk as a priority area DDcontinue our research into changing hurricane activity rates DDcontinue to review new models and data as they develop DDset up regular (likely quarterly) broker engagement More information on how we followed up with further work on US flood risk in 2017-18 can be found in section 2.1 under ‘working to increase availability for insurance’. Role of the insurance industry Climate-related risk is a global and systemic issue which cannot be addressed by one company acting alone. Hiscox engages with other parts of the insurance system and believes there is a wider insurance industry role to co-operate with other stakeholders such as Government, research bodies pressure in homeowners’ domestic more sustainable claims settlement see and NGOs, other business sectors and systems and alerts them by an app if there section 3.3. industries, and certain partners and is a drop indicating a possible leak. customers to: New insurance products for DDconduct joint-working on It assists them to quickly respond and the US flood market climate risks; work through common causes, so they FloodPlus is a new flood product DDimprove modelling, particularly can fix the problem quickly or get help. that Hiscox launched in 2016 for US of flood risks; It can also help the service engineers homeowners. FloodPlus was shortlisted DDsupport accurate pricing of risks by providing data, and identifying long- as a finalist in the NIIT Insurance by the insurance industry to help term issues. Together these actions can Initiative of the Year category, at the pinpoint areas which are in need of reduce the cost of damage from leaks, Insurance Day London Market Awards in increased risk mitigation measures; and may even avoid any damage at September 2017. DDcontinue with further upgrades; all; reducing the risks associated with FloodPlus has been well received DDprovide products to individuals domestic plumbing. since its launch, showing a clear and organisations to help manage As part of reducing the climate impact need in the US market for broader, their own risk. of claims settlement, we are also running more competitively priced coverage a trial in the UK with AnyJunk to take away than the NFIP while offering an easier the waste arising from claims. AnyJunk purchasing mechanism and better uses smart technology to partner claims process. Not only has there with local waste collection companies been good take-up by NFIP clients, to provide a low carbon footprint and but approximately half of policies environmentally responsible clearance have been sold in non-NFIP zones service for bulky waste. with lower flood risk. Their digital platform operating model The Hiscox London Market line means collections are undertaken underwriter on personal lines and by very local teams to minimise miles flood received the Insurance Insider per job and maximise efficient use Honours 2017 award for Young of resource. Their approach also Underwriter of the Year, mainly for means that on average 94% of the his work on FloodPlus. Hiscox has waste they collect avoids going to since launched FloodXtra in the landfill. For more information on how US, a reinsurance product which our AnyJunk and Leakbot pilot projects, complements FloodPlus. More amongst other measures, help deliver information is included in section 2.1.

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2. Informing public policy

Summary market with the launch of a new Flooding is a serious issue – yet many Hiscox works with policymakers and reinsurance product, FloodXtra. This UK home owners were previously unable engages in public debate on climate complements the existing flood risks to access affordable insurance against change issues, both individually and as we underwrite through our commercial flooding. Hiscox was one of the leaders an active member of relevant industry property book in Hiscox USA and our lobbying for change. Bronek Masojada bodies, particularly Lloyd’s, the ABI London Market product, FloodPlus, engaged with the House of Lords, and ClimateWise. We collaborate with which is a private market alternative to the the Treasury Select Committee and other bodies because we recognise National Flood Insurance Program (NFIP). other key government stakeholders to highlight the issue. that we cannot change policy alone, FloodPlus but will have more influence working FloodPlus, launched in May 2016, Hiscox was therefore delighted with others. is one of the first insurance products to see the launch of the UK Flood Re 2.1 Working with policymakers to to address flood insurance in the US. scheme in April 2016, the industry and develop and maintain an economy FloodPlus meets a shortfall in flood government collaboration set up to that is resilient to climate risk cover for many homeowners by offering provide affordable flood insurance for Paris Agreement higher limits and a wider scope of cover homeowners living in areas at high The Paris Climate Agreement was than policies provided by the existing US risk of flooding and anticipated to agreed in December 2015 by 195 government backed NFIP. With current provide insurance for an estimated countries and entered into force in NFIP limits of only US$100,000 for 350,000 homes. contents and US$250,000 for buildings, November 2016. Under the agreement, Lloyd’s disaster risk facility US homeowners have had limited countries are required to accelerate the Hiscox is a member of the disaster risk choice for flood cover. transition to a low carbon economy. facility which was launched by Lloyd’s Following the Paris conference, FloodPlus, is available through in 2015, recognising the need for Hiscox joined 1,300 other business wholesale brokers in the US. Not only dedicated collaboration in the Lloyd’s leaders in signing the Paris pledge for does it offer higher limits of cover, market in the assistance of developing action. Through this pledge, Hiscox but also a simpler definition of what countries in terms of disaster relief demonstrates its support for the constitutes a flood, as well as broader financing. It is now a consortium adoption of the new, universal climate cover for personal property plus of seven Lloyd’s syndicates, pooling agreement formulated in Paris and alternative accommodation while the resources with a maximum capacity for its aim to limit the global warming property is being repaired. In 2017, of $445 million. temperature rise to less than two Hiscox won the Lloyd’s ‘Best Product Climate-related financial disclosure degrees Celsius. Politically there have Innovation Award’ for FloodPlus. been challenges this year but we remain One result of the Paris Agreement has committed to the Paris accord. Flood Re been to place increasing pressure on We also remain committed to our financial institutions to manage climate Working to increase availability participation in the Flood Re programme risks (and opportunities) and to disclose of insurance in the UK, through both our broker and them. One significant development in Hiscox is working with partners our direct-to-consumer home insurance this more focussed approach to climate and external bodies to increase the offerings. It continues to allow us to risk reporting is the work of the Financial availability of insurance for previously provide flood cover to new and existing Stability Board (FSB) Task Force on uninsured or underinsured markets customers, including some which we Climate Related Financial Disclosures and sectors. would otherwise be unable to cover, and (TCFD). The primary aim of the TCFD is FloodXtra over the last 12 months alone we have to develop voluntary, consistent climate- The tragic events of autumn 2017, when ceded around 1,700 risks into Flood Re. related financial risk disclosures for use by companies in providing information Hurricanes Harvey, Irma and Maria Environment Agency data shows to investors, lenders, insurers, and battered parts of the US and Caribbean, around two million homes in England other stakeholders. underscored the fact that too many and Wales at flood risk now from the consumers at risk of flood are either not rivers and sea, with over 500,000 of 2017-18 has been a significant year being adequately insured or else not these at ‘moderate’ risk or greater, and for this work, in particular with the covered at all. In 2017 we increased our around 2.4 million additional homes at publication of the recommendations commitment to the US flood insurance risk of surface water flooding. of the TCFD. For the insurance sector,

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the TCFD recognised the decade of Principles and reporting methods in the following key areas: good work by ClimateWise members, for 2019-20. DDdecarbonisation leadership including Hiscox, in publicly and and supporting corresponding We are reviewing how to ensure that voluntarily disclosing their strategic public-sector decision-making; our climate reports could fulfil response to climate change across DDincentives to reduce climate risk these expectations. their core business activities. The TCFD by promoting risk awareness, therefore identified the ClimateWise An international commitment risk prevention and risk principles as a relevant tool to help to working with government reduction solutions; insurers implement many of the TCFD Hiscox was one of 15 ClimateWise DDwhere risks cannot be effectively recommendations and this is reflected members to endorse an open letter reduced or retained, supporting in the TCFD supplemental guidance to the Governor of the Bank of England, the transfer and sharing of for each sector, including insurance. Mark Carney, and the UK’s Prudential such risks through insurance This is a significant endorsement as it Regulation Authority (PRA). The letter mechanisms including risk reinforces that those insurers voluntarily welcomed the PRA’s initiative to be one pooling mechanisms; disclosing their efforts through of the first insurance regulators globally DDconsidering insurance industry ClimateWise are well-placed to to examine the likely impact that climate responses to climate related meet the TCFD requirements. change will have on the insurance events for shaping the behaviours industry and its customers. The letter and decisions of governments, ClimateWise issued a response went on to welcome the publication of communities and businesses welcoming the report, noting that the PRA report, ‘The Impact of Climate in managing climate risks. individual sectors would require Change on the UK Insurance Sector’, It identifies a mutually dependent agreement on common methods of one of the first examples globally of an relationship between governments, reporting, to allow comparison between insurance regulator examining the society and the insurance industry and participants. Since some disclosures may impact that climate change risk could recognises that increased risks resulting be commercially sensitive, negotiation is have on the insurance industry and its from climate change and ecological also necessary to agree the level of public customers, and to call for the report to degradation pose a shared risk to the and private disclosure, and which lead to urgent collective action to reduce insurance industry, governments and bodies will be acceptable as arbiters of the risks of climate change impacting society. This provides a strong incentive any reporting scheme. As a member of society, and ultimately the insurance for collaboration at each step along the ClimateWise, Hiscox stays up-to-date industry. Mark Carney, Governor of the insurance risk management value chain. on developments, has a voice in the Bank of England, welcomed the valuable The statement is still available online. debate and is proactively involved in the co-operation of the regulated insurance implementation of TCFD for our sector. firms on these issues. 2.2. Public debate on climate change and the need for action In addition to supporting the ClimateWise Since publication of the PRA report, We engage with public debate about work with the TCFD, Hiscox has ClimateWise has continued to engage climate change in a number of ways, been monitoring the effect of the with the PRA and to explore ways from technical research and policy recommendations on the future of our to contribute to the debate on how responses to reacting to world weather own reporting. In order to understand regulation can more fully enable events. In September 2017, our CEO more, we: insurance to play its role in the response Bronek Masojada was interviewed by DDperformed an initial review and to climate change. gap analysis of our reporting under the Financial Times, Reuters, A.M.Best, ClimateWise against the new TCFD In 2013 Hiscox endorsed a global Evening Standard and on BBC’s Radio 4 recommendations in January 2018 insurance industry statement, Today Programme and World Service, DDresponded to the ABI on the sponsored by ClimateWise, the Munich amongst other channels, about the same topic to show how we plan Climate Insurance Initiative (MCII) three major hurricanes of that season to report against TCFD using and the United Nations Environment and the role of insurance in weather- a modification of our existing Programme Finance Initiative (UNEP FI): related events. ‘Building climate and disaster-resilient ClimateWise reporting “Harvey has also highlighted the lack communities and economies: How the DDreviewed new guidance issued of flood cover for large parts of the insurance industry and governments by ClimateWise in March for US market.” can work together more effectively’. optional TCFD-related reporting Insider.co.uk DDattended a ClimateWise roundtable This collaboration involved over 100 “Insurance exists to help individuals in May 2018 to discuss the of the top insurers across the world. and companies recover from the timeline for adopting the TCFD It aimed to facilitate climate and disaster devastation caused by events like this, recommendations; this will begin resilient communities and economies and our priority is to pay claims quickly in 2018-19 with non-public trial and looked at how the insurance industry so that they can do that.” disclosures, moving to an agreed and governments can work together FT set of TCFD-aligned ClimateWise more effectively, agreeing to actions

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We engage in public debate on climate change issues, individually and with industry bodies such as Lloyd’s, ABI and ClimateWise.

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“In Harvey only one in six homeowners sustainable through education, green procurement practices, life in Houston had (flood) insurance.” advocacy, a green building forum cycle costing, affordable housing CNBC TV and local projects; and urban planning. DDBermuda Environmental Climate change is discussed at the 2.3 Planning for the future Sustainability Taskforce, which top of our newly updated Environment Hiscox planning is engaging with the community homepage online, as is our work with In 2017-18 we planned to: to advocate for sustainable ClimateWise and our support in DDwork towards including the management and development of 2016-17 for the London market resilience recommendations of the TCFD the physical, social and economic in future climate reports. exercise. The aim was to test how the environments; world’s pre-eminent insurance market DDReef Watch, which is run by the As ongoing work, we also planned to: would respond in a worst-case scenario Bermuda Zoological Society and DDcontinue to strengthen links catastrophe. The events chosen for for which Hiscox is lead sponsor, across the industry and with simulation reflect the changing nature and which monitors the ecological policymakers through participation of risk; a highly-destructive hurricane, condition of Bermuda’s coral reefs in relevant events and initiatives; an unprecedented cyber event, one and fish stocks, actively managing DDinfluence policy decisions, of the largest stock market declines, the effects of many local and global working individually or through and a major reinsurer default with impacts that can harm reef and our membership of relevant consequent delays in reinsurance fish health; industry bodies. payments. We published the results DDGroundswell, whose work aims We have been active in all these areas. and recommendations for improving to empower the general public industry resilience in our white paper. to positively influence, support In 2018-19 we plan to: This test also resulted in changes to how and take part in solutions to DDcontinue to implement FloodXtra we do business and manage such risks, environmental issues. and FloodPlus in a deregulating which helped us to better withstand US flood insurance market; Our Bermudian staff also support and the financial impacts of Harvey, Irma DDpilot a US consumer awareness participate in local initiatives, engaging and Maria in the same season. campaign that raises understanding with their business and social community of their own flood risk; ABI vision as well as local policymakers and DDcontinue to engage with the TCFD The ABI has a climate change home- research organisations. See more recommendations through our page explaining basic concepts and details in section 5.4. linking to various case studies of how membership of ClimateWise and the issues affect members, and recent RICS our own internal reviews. We continue with our established pieces of research here. Hiscox is Role of the insurance industry commercial partnership with the a member of the ABI, supporting its Climate change is a global and Royal Institute of Chartered Surveyors publications and participating in some systemic issue and tackling it requires (RICS). Our work with them focuses of its projects. collaborative solutions across the on three areas; providing RICS members industry and beyond. We therefore Supporting the Caribbean with preferential rates on Hiscox home believe that there is a wider insurance Hiscox continues to support the insurance, supporting some of their industry role to: Caribbean Catastrophe Risk Insurance member events through sponsorship, DDconduct joint working on policy Facility (CCRIF), an innovative public and sharing market insight and thought issues and develop a clear, and private partnership which aims leadership with their members based cohesive industry perspective; for a Caribbean region with optimised on our experience of the home insurance DDlobby policymakers and disaster risk management for climate market. RICS believes that surveying regulatory bodies on behalf change and to adapt practices for has two qualities that make it uniquely of the insurance industry; supporting long-term sustainable placed to support the transformation DDissue public statements on behalf development. The Facility made towards greater sustainability in land, of the insurance industry. a payout this year in the wake of the property and construction – its market devastating 2017 Hurricane season, experience and authority and its public when Irma and Maria affected the region interest remit. As early as 1881, the RICS (see section 3.4). Royal Charter set out the primary role of a surveyor as ‘securing the optimal We also continue to support a number use of land and its associated resources of environmental groups in Bermuda, to meet social and economic needs’. where we are headquartered: DDGreenrock, a charity helping As an organisation RICS advises individuals and companies to make political decision-makers on issues Bermuda socially, economically such as energy performance, and environmentally more mainstreaming sustainable buildings,

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3. Supporting customer climate awareness

Summary discounts and rewards for acting DDlinks to climate-related relevant Hiscox is working with our customers sustainably and taking measures papers and recent articles we across the globe and using a wide to reduce climate related risks; have published, including about variety of communications methods DDsurvey participants, many of whom any awards we have received. to ensure that we inform their decisions were within Hiscox’s target market, Of these, our climate report is our about insurance cover for climate risks. possessed a natural optimism primary vehicle for communicating about their ability to affect climate “2017 was another important lesson information to all stakeholders about change, with the majority claiming in the need for flexibility in business, our view of climate risks and the to make lifestyle compromises and I have been proud of our resilience. actions we are taking to tackle them. to benefit the environment. The year turned out to be an historic The environment homepage also one for natural catastrophes and it is at To update our view of customer now emphasises and explains the times like this that reputations are won attitudes, we are considering running importance of climate-related risks, or lost. Paying valid claims fast is what a similar survey in 2019 and are currently and managing climate impacts, our business was built for; if there were reviewing what the scope of this exercise for Hiscox more clearly. no claims, there would be no need for should be. Information and support on insurance. Our teams around the world Website update climate-related topics have served our customers well.” In 2017-18, Hiscox reviewed and We publish a number of articles Bronek Masojada, CEO updated their corporate website, with updates and advice for domestic 3.1 Informing our customers about including the section of our website on and commercial customers, brokers, climate risks and helping them environmental, social and governance investors and the general public to assess their own risk (ESG) issues, entitled ‘Responsibility’. every year through different areas Understanding our customers It has four sections as well as a general of our website. Core to our business is understanding introduction to our values: For example, when FloodRe launched our customers. We spend considerable DDpeople; in 2016 we publicised this new opportunity effort to identify how their needs and DDcommunities; for customers to obtain insurance cover wants change over time. As part of this DDcustomers; through articles (e.g. ‘Flood Re – what process, we commissioned an IPSOS- DDbrokers and industry; it is, how it works and what it means MORI survey of 610 customers in our UK DDenvironment; for you’) in our online home insurance target retail market in 2016, to uncover DDvalues; magazine, Cover Stories. customer beliefs and expectations on DDpolicies and disclosures. climate change, and where they would We also publicised our renovation In the environment pages, which are go for advice on the risks they manage. and extensions report to our customers. accessible directly from the homepage, For more detail on the survey please It reached several conclusions: we now include: see section 1.2. DDas experts in risk, consumers DDour climate report; believed that insurers should take DDour commitment to membership We raised the profile of both with our a lead role in informing and advising of ClimateWise; brokers through our online broker consumers about relevant DDan explanation of how we help news magazine. Broker news uses environmental issues such customers adapt to climate change; a combination of broker-focussed articles as flooding and other DDa video about our latest flood and links to more general articles, fo weather-related risks; product, FloodXtra and how example those posted in Cover Stories. DDparticipants believed that it is helping US customers with Our online small business knowledge sustainable efforts should be insufficient or no flood cover; centre also has useful climate-related a collaborative approach between DDour market resilience white paper information including: consumers, companies and from early 2017; DDcarbon neutrality for the government; DDa summary of the carbon emissions small businesses DDconsumers felt that insurers of our business operations; DDhow to cope with/prepare should take a proactive approach DDour current carbon offset project; for floods when it comes to climate change, DDlinks to our ESG reports such as offering customers and disclosures; See here for further details.

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We commissioned a survey of our UK retail market to uncover customer beliefs and expectations on climate change.

Our advocacy of ClimateWise principles can be found on the environmental pages of our corporate website.

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We update our articles from time to Best Laid Plans – energy Through our own website, we refer time, for example this winter we reissued efficient homes customers via our articles to external guidance on winter precautions In autumn 2017 we published a short sites which help them assess their own for homeowners: video on energy-efficient house building risks including Environment Agency DDfive ways to winter-proof your home; on our YouTube channel as part of sites on: DDhow to weather-proof your home. raising the profile of Best Laid Plans, DDthe new flood information service; a series of hour-long programmes DDpreparing for a flood. We have previously published other co-created by Channel 4 TV and Hiscox. articles which are accessible including: We also link to the UK Government’s site The series shows the presenters DDthe home of the future: taking advising businesses on how to handle assisting homeowners to resolve design a tour round the home of 2025; events such as floods which interrupt dilemmas in their home renovation/build DDcan a home create more energy their trading: The Business Continuity projects, but also raises awareness than it consumes? Management Toolkit. amongst customers of the need for For our home insurance customers, renovation and extension insurance 3.2 Encouraging our customers to we also have the following articles on to reduce the losses associated with adapt to climate change and reduce environmental issues: projects overrunning their schedules, their emissions DDfive energy saving tips for as happens in 87% of cases. Flood Re and FloodPlus your home; In addition to offering more home The series builds on the collaboration DDlighting your home in the owners the opportunity to obtain between Hiscox and architectural winter months. insurance against flood risk, the Flood designer Charlie Luxton, who provided Re scheme also helps people to better We have issued our articles in a purely a public face and comments particularly understand their level of flood risk and online format for some time, which on the rise of eco-efficient technologies explains how they can take action avoids the carbon footprint associated in renovations, for our renovations and to reduce their risk, where possible. with hard-copy magazines. extensions report in early 2018. The scheme is intended to operate For more detail on that report please In the coming year we will also be for 25 years, allowing time for the see section 1.2 about our collaborations publishing new articles on the following: government, local authorities, insurers in research. DDour pilot project with AnyJunk and communities to work together to for waste removal during claims New pilot projects for UK customers improve flood preparedness. in the UK (summer 2018); Working more closely with customers Hiscox is able to offer attractive pricing DDhow to deal with extreme summer can also involve investigating new for those customers who are minimising weather (summer 2018); technologies. This year Hiscox is trying their climate risks through our DDour Leakbot pilot to improve water out two new internet-enabled services FloodPlus product. leak detection (winter 2018). for customers in the UK, Leakbot and AnyJunk. As mentioned these will be Insurance for new In order to help our customers deal featured in our customer articles online. environmental technologies with extreme weather as it happens, Please see section 3.3 for how these When new technologies enter a market, we use our customer services Twitter pilot projects assist us to develop more effective insurance against risk is an account and direct emails. sustainable settlement of claims. important factor in facilitating their For example, during Hurricane Gonzalo take-up. It has the dual effect of enabling An industry approach to we emailed our UK customer base with the growth of new direct business informing customers advice on how to keep their homes and customers, whether through existing Through our membership of ClimateWise, properties safe and with contact details businesses moving into a new sector Lloyd’s, the ABI and other relevant for the Hiscox claims team to help of the market or through encouragement industry groups, Hiscox participates customers prepare and prevent potential and facilitation of new business start- in and/or supports insurance industry property damage. ups, and of growth of home insurance initiatives to inform our customers about customers. Hiscox has identified a Other routes for communicating climate change risks. See section 2 growing customer base for insurance directly with our customers and brokers for more. products and services related to about climate change issues include Lloyd’s produces climate change environmental risks and climate change our Twitter accounts, which we publications on behalf of members. and is having significant success share news, tips and information with (See section 1.1 and 1.2 for the latest). implementing insurance products which customers and one which acts as respond to these new requirements. a portal for feedback from customers, The ABI provides customers with brokers and other stakeholders. We information on how to assess climate Initiatives include: also have our own YouTube channel change issues and risks, how to prepare DDsolar panel cover for policyholders where we post informative videos. for extreme events and how to access with home insurance; For example, we have released a video appropriate insurance products. See DDenhanced open-market insurance describing our FloodXtra product. the ABI website for further details. for environmental industry

20 Hiscox climate report 2018 3 Risk analysis 14 Informing 18 Supporting 24 Incorporating 30 Reducing the 42 Reporting public policy customer climate change environmental and being climate into investment impact of accountable awareness strategies our business operations

We published a short video on energy-efficient house building on our YouTube channel.

professionals, covering original energy source be damaged. industry as a whole could increase the public indemnity insurance We will provide up to £5,000 for them sustainability of insurance claims. The for survey work, defence costs to replace energy sources with more resultant report focused on domestic for investigation under the environmentally friendly alternatives property claims, taking into account Environmental Protection, (e.g. solar powers, windmills etc.). the lessons learnt from similar initiatives Health and Safety, and Cover This has increased our value offering within the motor and commercial for Corporate Manslaughter to our more environmentally aware property sectors. Acts and Pollution; clients. In addition, we have refreshed It concluded that a sustainable claims DDbespoke open market one of our home insurance products to process requires the following: insurance for energy assessors clarify that it does cover environmental DDidentification of priority areas who rate the energy efficiency installations, such as solar panels, for to reduce environmental impact; of properties under the damage as result of insured incident DDa sustainable claims government’s regulations; and lost revenue which would have management plan to reduce See section 1.4 for more on how risks been generated (up to certain limits). environmental impacts; are assessed for new technologies. This is a positive move and, in addition DDcommunication, appropriate to attracting new customers, existing to your business, with contractors, Adapting existing products customers are switching to take suppliers and customers to encourage customer advantage of the additional cover. on opportunities to reduce take-up of new technologies environmental impact; Business analysis of new risks and 3.3 Increasing the proportion DDstandardised annual reporting opportunities feeds directly into of non-life claims that are settled on progress. adaptations and refinements to our in a sustainable manner insurance products. See section 6.2 for ClimateWise has worked on an industry In implementing the above guidance, further details of the reporting process. approach to sustainable claims with Hiscox recognises that it is difficult to For example, we have changed our the University of Cambridge Institute have direct influence on repair practices wording in our high-value household for Sustainability Leadership (CISL), as they are managed indirectly through product offering to allow clients to use to develop sustainable claims a network of contractors appointed by renewable energy as a replacement management guidance. The aim was loss adjusters. However, we recognise energy source in their home should the to recommend how the insurance that sustainable claims management is

Hiscox climate report 2018 21 3 Risk analysis 14 Informing 18 Supporting 24 Incorporating 30 Reducing the 42 Reporting public policy customer climate change environmental and being climate into investment impact of accountable awareness strategies our business operations

an area where we can make a significant DDwork with external stakeholders to deal with climate change risk in difference. We are currently exploring to reduce indirect impact; emerging economies and poorly some new technologies which could DDintegrate awareness of climate modelled countries. Hiscox works with help us to do this by offering new change across the business; and through local insurers to provide risk services to customers. DDadvise clients on the opportunities management advice, assurance and and obligations arising from and insurance cover for farmers and farm Piloting two new services under climate change law; mutual in many areas of the world, The Leakbot device notifies customers DDwork collaboratively to engage particularly in China and India, against by a mobile app of any changes in reduced yields due to poor weather their water pressure. It supports them in the public debate on climate conditions during the growing season. to work through possible issues and change and to develop, apply This catastrophe protection ensures that fixes, enabling earlier fault detection, and promote best practice the local insurers can continue to provide which in turn means the potential for across the sector; D cover even after major disasters. less or no damage. By collecting and Dreport on progress and analysing data they can also improve the be accountable; We support organisations including D service over time, for example providing Dadopt and pursue a challenging farm mutuals, agricultural insurers and information to service engineers sent emissions reduction target government risk pools, enabling farmers to make repairs. Together these factors appropriate for the own organisation to grow food for the world’s most rapidly should reduce the carbon footprint and and needs, achievement of which expanding populations. cost of any claims, and avoid some will deliver over stated time periods Funding for disaster relief damage altogether. a meaningful and progressive reduction in emissions. Hiscox is supporting the industry approach We are also piloting another project to assisting the developing world through in the UK this year. AnyJunk uses smart We also expect firms we use to think our membership of ClimateWise, Lloyd’s technology to partner with local waste about travel and, where feasible, and other relevant industry groups. collection companies to provide a fast to use hybrid hire cars or cars with Hiscox is involved in the Lloyd’s response, low carbon footprint and low emissions. Many now use hybrid Disaster Risk Facility. This initiative environmentally responsible service car hire companies. On the property involves several syndicates providing for removing bulky waste. Their digital side we have reduced emissions by a pot of capital for underinsurance, platform operating model means 70% and rolled out claims management which currently stands at $445 million. collections are undertaken by very systems to all of our property adjusters, local teams to minimise miles per reducing the need for paper files and Related work by the Risk Modelling job and maximise efficient use of correspondence. and Mapping Project (RMMP), a sub- resource. They provide an end to end 3.4 Assisting markets with low group of the Insurance Development waste audit trail with an average 94% insurance penetration to understand Forum (IDF), a sub-group of the landfill diversion. This service will help and respond to climate change Insurance Development Forum (IDF), reduce both the carbon footprint and Increasing market penetration is focussing on understanding why costs of claims clear-up, and improve The Intergovernmental Panel on there is currently limited collaboration customer experience by reducing the Climate Change (IPCC) Special Report across government, intergovernmental, disruption associated with arranging on Managing the Risks of Extreme academia and the insurance industry waste removal. Events and Disasters to Advance to work to close the insurance protection Climate Change Adaptation (SREX) gap in developing countries. It has Reducing the impact emphasised that the poorest countries established that there is: D of claims assessment are expected to be worse affected by Dduplication of activity and From a claims perspective, Hiscox changes in the frequency and intensity inefficient use of resources; D partners also share our desire to of extreme weather events. Importantly, Dhighly variable understanding minimise their environmental impacts. these countries also have low of risk modelling capability and For example, Hiscox claims are actively insurance penetration. risk assessment development; working with loss adjusters to keep DDpoor communication and take-up travel to a minimum and to encourage The first step in assisting markets and of approaches proven to work; use of public transport, mirroring Hiscox customers in responding to climate DDinconsistent development of data, staff travel practices, to reduce the change is to understand how it will affect models, methods and language; environmental impacts of their travel. these markets. Accordingly, Hiscox is DDignorance of models, data and We measure and report our own Scope investing in research to assess the effects platforms developed and available; 3 (travel related) emissions annually – of climate change across the developing DDpoor access to – and sharing of – see section 5.3 for more details. world, including on hurricanes in the high quality hazard, exposure, Atlantic and flooding in low lying countries. risk and historical loss data; They commit to: DDgaps in exposure and vulnerability DDmeasure, manage and reduce We also have strong links with the data in developing countries; the impact of operations; Insurance Institute of London on ways

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AnyJunk is a new service we are piloting this year.

DDchallenges with bridging 3.5 Planning for the future DDpilot a US consumer awareness the communication gap and Hiscox planning campaign that rises understanding misalignment of interests between In 2017-18, we planned to: of their own flood risk. DDcontinue with our support for public and private sector. Role of the insurance industry Flood Re, and our roll-out Since climate change is a global and Supporting the Caribbean of FloodPlus; systemic issue, any solutions require Hiscox continues to support the DDcontinue to work on the flood collaboration between many parts Caribbean Catastrophe Risk Insurance insurance gap. Facility segregated portfolio company of the industry and beyond. We therefore (CCRIF SPC), which in late 2017 released We continued with ongoing work to: believe that there is a wider insurance D funds to support affected communities Didentify new opportunities industry role to: D in the aftermath of Hurricane Maria. to introduce products and Dproduce reports on climate change, For more details, see section 1.3. services which support our aimed at informing insurance customers in adapting to customers about the issues and In May 2017 the Caribbean climate change and continue encouraging them to consider Development Bank and CCRIF SPC increasing the number of these climate change in their decisions; launched the Integrated Sovereign policies sold to new technology DDencourage sustainability in the Risk Management in the Caribbean companies (Flood Re and claims process; project. It seeks to enable all Caribbean FloodPlus delivered); DDraise the profile of climate change countries to take a more proactive DDcontinue to provide insurance in markets where there is poor approach towards country risk against effects of climate change insurance penetration. management, moving beyond planning in areas of poor penetration. for natural disaster risks such as climate In 2018-19 we plan to: change and events like hurricanes DDfocus our energy on new products and earthquakes and recognising and services that best protect the intrinsic links between disaster risk our customers from the risks and other types such as economic, of climate change; technological and financial risks DDcontinue to implement FloodXtra and the impacts of these on and FloodPlus in a deregulating socio-economic development. US flood insurance market;

Hiscox climate report 2018 23 3 Risk analysis 14 Informing 18 Supporting 24 Incorporating 30 Reducing the 42 Reporting public policy customer climate change environmental and being climate into investment impact of accountable awareness strategies our business operations

4. Incorporating climate change into investment strategies

Summary claims and capital to support the of risks that could affect our investments, The Hiscox investment team oversaw business. Our conservative stance and climate change affects a number financial assets and cash totalling ensures that it remains in a good of these directly or indirectly. Its effects £4.41 billion in 2017, investing in bonds, position to fulfil both roles. are included within the risks we expect cash and equities on behalf of the our asset managers to review Our secondary objective is to maximise Hiscox Group. and manage. our investment result in the prevailing We maintain a relatively small in-house market conditions subject to a prudent Our new CIO has also added to investment team of five staff. Located risk appetite. Hiscox outsources the his significant experience in asset in London, the team is led by our new management of the Group’s investment management, by recently completing Chief Investment Officer (CIO), Alex Veys, assets to a range of specialist third- a Masters in sustainable energy who has overall responsibility for asset party fund management experts and futures from Imperial College London. allocation and manager selection. investment managers, who deal with Combining the expertise of the overall Alex is charged with optimising Hiscox’s securities and stock selection on a investment team with the expertise of investment portfolio in line with our day-to-day basis and manage the the new CIO ensures the team make policies and targets.He is supported investment risks on our behalf. However, decisions on investments and related in the investment team by a deputy the investment team retain the primary climate risks in a pragmatic, practical CIO responsible for fixed income fiduciary duty to protect and enhance and useful way for Hiscox. investments, a Head of Risk Assets the value of our assets. This includes As good business practice, Hiscox (responsible for equities and hedge protecting against the investment risks expects its asset managers to invest funds), an investment analyst for financial resulting from climate change. in companies that have sound reporting and analysis, and a risk 4.1 Evaluating the implications environmental, social and governance or quantitative analyst (responsible of climate change for investment (ESG) practices. Those companies for risk analysis). performance and shareholder value that do not have such controls are not We detail our approach to investment The Hiscox investment team directs companies in which we wish to invest. within the Annual Report and Accounts. its third-party managers to evaluate all We are aware that much research The priority for our investment portfolio risks that are pertinent to the return and has been done to show that those is always to provide liquidity to pay risk of its assets. There are a multitude companies that excel in ESG metrics

Asset allocation

Risk assets Cash Bonds 7.6% 14.7% 77.7%

24 Hiscox climate report 2018 3 Risk analysis 14 Informing 18 Supporting 24 Incorporating 30 Reducing the 42 Reporting public policy customer climate change environmental and being climate into investment impact of accountable awareness strategies our business operations

will outperform those that have poor (Australia), the Mercer Climate Change DDFTSE4Good; ESG metrics. Report and a number of academic DDThe Cambridge Institute for papers exploring social discounting Sustainability Leadership; It is an approach that means the majority and mitigation costs. DDLloyd’s of London; of Hiscox investments are in short-dated DDThe Association of British bonds (77.7% at the end of 2017) with ESG review and our investments Insurers (ABI). a small proportion in cash (14.7%), and We review our investment criteria the smallest in equity type funds (risk quarterly, and periodically this focusses For example in December 2016, the assets 7.6%). on ESG matters. In 2016-17, the Hiscox FTSE4Good Sustainable Investment investment team evaluated the ESG Forum delivered a seminar entitled As far as bond funds are concerned, reports of our fund management ‘Past-Present-Future of Sustainable there is little impact that Hiscox can businesses, in order to assess their Investing’ which looked at: have through its short dated bond funds performance. In 2016-17, we also DDthe future of Environmental, Social by targeting climate change issues reviewed the climate-related performance and Governance (ESG) ratings; in the context of its overarching objective of 13 of our investment partners (six DDsustainable investment models; of sound investment returns for Hiscox of our key equity fund management DDlevels of disclosure of information; shareholders. Bonds are Government companies and seven of our key bond DDstewardship; issued and Hiscox is only one of management companies). This review DDobstacles to investor engagement; many investors. consisted of an open search of their DDlong-term franchise value. On the risk asset side we invest in publicly available information and Hiscox communicated the seminar equities through funds which do have scored them on four factors: information through our investment D the ability to steer companies, and Dlevel of public disclosure on team, who completed an analysis these fund management companies we climate policy on climate related of the relevance of its findings to Hiscox. expect to be picked through sound ESG investment; As another example, in January 2017, D factors as well as more traditional risk Devidence of implementation the Climate Change and Sustainability and return factors. of the policy; Services section of EY (formerly Ernst DDinvolvement in research and Hiscox, as an insurance company, & Young, an international assurance, pro- active initiatives towards sees the impact of climate change tax and advisory services consultancy) sustainable investment; through its insurance business and has published their latest report, ‘Climate DDwork to minimise the direct impacts significant expertise in this area. On the Change: The Investment Perspective’. of their business operations. asset side, we choose to invest assets It shared thought leadership on climate- to support Hiscox’s ability to underwrite We used the results to draw conclusions related opportunities and threats for risks, including risks associated about how we might alter our future key players in the financial system, with climate change, to the best of investments on climate related issues. particularly looking at the anticipated its ability and generate strong return The expectation on companies to worldwide ‘energy transition’ resulting for its stakeholders. disclose ESG matters is constantly from the Paris agreement, with its This does not mean a blanket ban on changing. This affects Hiscox as much implications for the financial services investing in climate impacting companies as those we invest with. We belong sector. EY say “on the upside, research or a positive bias to investing in low to a number of disclosure and in the report suggests that investment carbon technologies but an intelligent ESG-related schemes, including the opportunities arising from the energy strategy, taking into account risks CDP, ClimateWise and FTSE4Good. transition will actually outweigh climate including climate change, to make smart We also receive a number of other ESG related risks in the long term and many investment decisions as climate change enquiries every year, which we evaluate have already taken tangible investment has more of an impact on the world and respond to as appropriate. More decisions in response.” economy. Hiscox therefore maintains details of our approach to ESG reporting Our previous CIO analysed the report a robust balance sheet to support and ESG indices can be found in and found that, though mostly aimed individuals, companies and institutions sections 6.1 and 6.2. at the longer-term life and pensions when they are most at need. Industry collaboration markets, elements had relevance to Previous analysis by Hiscox of the Hiscox regards industry co-operation the Hiscox business. economics of climate change and the as an essential part of our business. In June 2017, a Hiscox representative potential impact on our investments On investments, we have worked with, participated in the Lloyd’s Tercentenary has included consideration of the Stern are members of, or refer to: Research Foundation annual seminar on Review on the Economics of Climate DDThe Loan Market Association ‘Building Coastal Resilience with Natural Change (UK), the Jorgenson (et al) (LMA) Chief Investment Officer Infrastructure’, presenting the results of report on the US Market consequences (CIO) Forum; collaborative research on the modelling of Global Climate Change (US), the DDThe Insurance Investment Exchange; and financing of natural defences Garnaut Climate Change Review DDThe Geneva Association; to support risk reduction and climate

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Hiscox participated in the Lloyd’s Tercentenary Research Foundation annual seminar on ‘Building Coastal Resilience with Natural Infrastructure’.

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adaptation. The research studied how by financial institutions’, advising the DDinvestment predominantly in investments in natural defences can G20 on how to integrate environmental highly-rated bonds on the basis enhance natural wealth and social risk into financial decision making that these will show good resilience through the significant risk and resulting in a G20 communiqué ESG performance; reduction role of wetlands and reefs, recognising the importance of scaling DDan increase in our focus on ESG and how this may be accounted for up green finance and welcoming performance by Hiscox; in industry risk models. proposals for use of voluntary options. DDno specifically-defined restrictions currently set by Hiscox, with the We also participated in a Lloyd’s See sections 1.1 and 1.2 for more details exception of excluding investment workshop for the London insurance of their recent risk-related publications. market in 2015, which discussed in the nuclear sector. 4.2 Incorporating the outcomes of opportunities for climate change We will be considering whether all climate risk evaluations into investment related investment strategies. The our asset managers in future should decision-making event reached a consensus that climate be signed-up to the UNPRI in our Investment strategy review change is regarded as inevitable, next review, and what effects that In 2016, the investment team completed with a temperature rise of at least two would have. degrees Celsius. their third review of our investment approach, decisions and guidance, We select our investment partners The results of this roundtable were on track with their planned three-year based on performance, process, people shared in the 2015 Prudential Regulation cycle. The next review is scheduled and reputation. We expect transparency, Authority (PRA) report ‘The impacts for 2019 with interim reviews to be sustainable business practices and of climate change on the UK insurance conducted if there is a major new good governance in the companies sector’. Hiscox drew a number of development that may warrant a who manage our assets, as described conclusions related to our investment change to our investment strategy. in section 4.1. strategy, most notably that the evolving The 2016 review was supported by Board oversight and risk reviews policy response to climate change may the Hiscox sustainability integrator. be as important as its direct impacts. Even though our investment partners Analysis of the implications of these Following the most recent assessment manage the day-to-day investment risks conclusions has highlighted possible of climate change risk effects on Hiscox for us, we do maintain a strategic view impacts of climate change on: investments, we recognise that: of investment risk through the investment D DDthe economy through changes Das a relatively small participant team. Any significant findings are raised in the availability of the factors in the wider investment markets, at the regular meetings of the Hiscox of production and by changing we have limited influence on our Investment Committee of the Board. the efficiency with which factors fund management companies, This committee has responsibility for are combined to produce managers or on companies oversight of the Group’s investments goods and services (i.e. factor in which we invest; and is comprised of Board members, productivity), leading to capital DDthe area of environmental including our CEO and Chief Financial market volatility; investment is complex and Officer. When appropriate, it will consider DDhuman illness and mortality rates; multi-layered; the findings of its sister committees on DDenergy supply and industrial DDour investment approach is emerging risk and catastrophe modeling emissions, through based on short- to medium-term and incorporate these into future mitigation efforts; investments and, as such, these investment strategy. D have a low direct correlation Drelative prices of goods and Any risks are fed into our risk team and with the longer-term issues of services, increasing prices our risk management process, via a climate change risk; of food and energy respectively; monthly meeting. Risks are added to the D DDhowever the majority of the Dmigration and trade patterns; risk register and scored alongside other D investment managers we use Dtrends in sectoral flow of funds, business risks. See section 6.1 for more are organisations which are interest rates and credit spreads; details of our risk management process. D signatories to the UN Principles Dglobal political stresses, potentially One example of an investment risk related for Responsible Investment (PRI). igniting trade protectionism, to climate change that we are monitoring ‘land grabs’, pogroms and wars. As a result we have defined an is the creation of ‘stranded assets’, i.e. The Cambridge Institute for investment approach for the 2016-19 the value of our investments will drop Sustainability Leadership Centre for period which depends on: if they are placed within sectors which Sustainable Finance provides a central DDworking with the highest rated will suffer as a result of climate change information point for current industry expert fund management or as a result of adaptation to climate research and thinking on inclusion companies, with a reliance on change. One example of a sector which of climate change in financial decisions. their selection criteria on the basis we currently invest in is the oil and coal Past papers of relevance to Hiscox that their excellence will encompass industries which may be replaced with include: ‘Environmental risk analysis their ESG performance; renewable energy over time.

Hiscox climate report 2018 27 3 Risk analysis 14 Informing 18 Supporting 24 Incorporating 30 Reducing the 42 Reporting public policy customer climate change environmental and being climate into investment impact of accountable awareness strategies our business operations

Lloyd’s report: ‘Stranded assets: Tech Track 100 for the seventh year we are benefiting from their work on The transition to a low-carbon economy’ running and was category sponsor investments with organisations such published in 2017 also recommended of the Fastest-growing Private as S&P’s credit rating agency and investors should evaluate their assets’ Technology (TMT) Companies category, Foreign and Colonial Investment Trust. exposure to effects of climate change the Digital innovation Award and the Hiscox was one of 15 ClimateWise and how these might affect their Fastest Growing Company Award. members to endorse an open letter to value. Lloyd’s research identified eight Each year, The Sunday Times ranks the Governor of the Bank of England, hypothetical situations which could Britain’s 100 private technology Mark Carney, and the UK’s Prudential potentially strand entire regions and companies with the fastest-growing Regulation Authority (PRA) in response even global industries within a short sales over the last three years. It is a to the 2015 PRA report, ‘The Impact timeframe, as investors withdrew varied list, but one that demonstrates of Climate Change on the UK their funds. the growth and potential of companies Insurance Sector’. to investors and peers as well as current The report states that businesses Previous external communication about and future customers. should screen their investments based climate change in investment on environmental characteristics and Tech Track 100 companies range from has included: divest from projects or products that mobile start-ups right through to digital DDa paper entitled ‘Feeling the heat do not consider the impacts of climate marketing businesses. Companies – an investors’ guide to measuring change. We expect to have incorporated on the list are typically: business risk from carbon and any such risks into our decisions DDowned and run by entrepreneurs; energy regulation’ by the CISL through our focus on ESG performance DDhave between 20 and 200 staff; Investment Leaders Group; and periodic reviews, and our regular DDhave an average three year DDa paper entitled ‘Unhedgeable reviews. Please see section 1.1 for more sales growth ranging from 40% risk: how climate change sentiment detail on our research into more direct to 280% per annum; impacts investment’ by CISL; forms of climate-related risk. DDhave sales ranging from £5 million DDthe 2015 PRA report on the to £50 million. impacts of climate change on An industry initiative the UK insurance sector, which Hiscox supports the ClimateWise As the internet of things develops, included investment issues; initiative on increasing opportunities a number of Tech Track 100 companies DDa statement drawing attention to to make low carbon fixed income focus on environmental issues or bring the gap between the low carbon investments. ClimateWise reports that environmental benefits through their investment needed and the fixed The International Energy Agency (IEA) products and services, including last income carbon investments ‘estimates that investment and spending year two smart energy monitoring available and suggesting solutions in low carbon energy technology needs companies, three price comparison to address this; to dramatically increase from current providers who underpin many of the DDan environmental bonds levels if we are to avoid dangerous best known sites that allow consumers conference on capital markets climate change and the consequent to switch to cheaper or more green and the green economy. costs. Not mitigating climate change energy suppliers, and a company has serious implications for building solar-electricity kits for This year Lloyd’s has published corporate performance. developing countries. a paper on stranded assets – for more details please see section 4.2 as well Consequently, investment allocation Hiscox has historically insured around as section 1.2 on risk research. and portfolio management that does 30% of the Tech Track 100. Hiscox not take into account climate risks promotes Tech Track 100 through Communications strategy and opportunities will undermine our business blog, hosting information development long-term growth and financial stability. about our sponsorship, blog posts, Hiscox recognises the importance ClimateWise has set out to understand interviews and news. Hiscox also of good communication with our what a gold standard means in supports new technologies related to customers and stakeholders and we use incorporating low carbon decision climate change by providing appropriate different mechanisms to achieve this making in investment strategies. insurance products and services communication. We have reviewed our ClimateWise members are taking both (see section 1.3 for more details). major shareholders’ and peers’ attitudes a qualitative and quantitative approach to climate change, based on our history 4.3 Communicating our investment to considering the impact of climate of direct communications with them or beliefs and strategy on climate risks and opportunities in relation on publicly available information on their change to clients and beneficiaries to asset allocation. investment decisions. Industry collaboration Supporting investment in new low Hiscox relies on external collaborations In early 2017, we conducted a review carbon technologies to publish approaches to climate of peer approaches to climate-related In 2017-2018, Hiscox once again related investments. Through our investment. For further details about sponsored The Sunday Times Hiscox membership of Lloyd’s and ClimateWise, our approach to investments, see

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section 4.1. We also regard the Annual choices. The Hiscox pension team to work together, to: Report and Accounts as a key method has been actively promoting this DDbring together insurers and of communicating our approach to to our employees. investment houses in order climate change and other risk in our to facilitate an industry approach In 2017-18, we again offered staff investments. In 2017-18, we continued to including climate change the opportunity to make a one-off to implement a proactive approach issues in investment decisions; donation from their bonus to a charity to communicating with customers DDraise the profile of climate of their choice, including a range of and shareholders on climate change change risk and investment environmental charities. We promote with stakeholders. subjects, based on our findings. See our staff pension portal across the section 3.1 for more details. Hiscox Group. Pension funds In addition, the Hiscox Group pension Our research has been shared with advisors send regular emails to all UK the trustees of our staff pension fund. staff to remind them of the personal Hiscox has two pension arrangements choices available and to encourage – a final salary scheme and a Group them to consider whether their choices personal pension plan. Under the former, continue to be appropriate to their trustees are responsible for investment personal circumstances. Hiscox also decisions and under the latter, it falls holds investment seminars where to individual members. Hiscox Pension employees are told how to access fund Trustees Ltd is responsible for the fact sheets and switch their investments. investment of the Hiscox pension scheme’s assets and has delegated 4.4. Future plans the day-to-day management to Hiscox planning professional investment managers. Along with much of the insurance industry, Hiscox is still developing our The pension trustees meet quarterly approach to including climate change and the statement of investment in our investment decisions. In 2017-18 principles is reviewed annually. The our investment senior management pension trustees meet with each changed and we are taking the investment manager on an annual opportunity to review our practices. basis and during these review meetings potential climate change risk factors are In 2018-19, we will aim to: D discussed. The pension trustees also Dreview our ESG criteria and consider climate risks within climate whether to only invest through sensitive asset classes when carrying asset managers within UNPRI out their investment strategy review signatory organisations; D process. Hiscox is involved in this annual Dcontinue to support Tech Track review and in setting the statement of 100 and offer appropriate investment principles for the scheme. insurance to the listed companies. Members of the Hiscox Group Further ahead, we will conduct the Personal Pension Plan have access next planned review of climate change to a socially responsible investment and investment in 2019, following our managed by Foreign and Colonial (F&C) three-year cycle. Asset Management plc, a signatory Role of the insurance industry to the United Nations Principles for Hiscox has relatively little influence as Responsible Investment (UNPRI). a small investor on systemic issues such F&C has the largest dedicated as climate change. Solutions need governance and sustainable investment to involve many different organisations team in Europe and offers ethical and and individuals at different levels. environmental pension fund options. We do seek to share our expertise Information about this fund and its in climate-related risk as an insurer with options is readily available to staff in the other actors in the sector and beyond, scheme booklet and online. Members whether brokers, customers, regulatory receive an annual pension statement. bodies or Government departments. If staff wish to consider changing We participate in work with these their pension arrangements, tools industry stakeholders and believe that are available online to help guide their there is a wider insurance industry role

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5. Reducing the environmental impact of our business operations

Summary as a group, the Group procurement in addition, permits to work at Hiscox It is our policy to have a responsible and vendor management (GV&PM) offices are now submitted electronically approach to identifying and minimising approach. Its function is to provide and agreed over email. Most recently the environmental impacts of both our context and support for best practice through the introduction of the GA business activities, and our ownership procurement including contract training and education our group and occupation of office premises. We renewals and tenders, more structure policy has been shared with a wider seek to minimise the amount of waste and consistency in our supplier related international audience and their our activities produce, and the amount activities, and ensure appropriate supply chains. of resources we consume. supplier selection. Suppliers will be We are working hard to encourage all scored on their ‘fit’ to Hiscox values We aim to enrol the support and suppliers to invoice us electronically, and alignment with our own policies. commitment of all stakeholders in our and the accounts department are in the environment ambitions, including our We recognise that we can have a greater process of going completely paper free. including our employees, contractors, positive influence on the activities and We will no longer keep any hard copies suppliers, investors and customers. climate change impacts of our supply of invoices but will instead keep We deliver year-on-year improvement chain by using GP&VM to drive reduced all invoices scanned and saved in in the environmental performance emissions and waste. a secure folder. of our business operations. A history of influencing sustainability In a separate new development we are Hiscox is proud to have achieved our in the supply chain using asset lifecycle planning to inform targets for 2020 emissions reduction, We strive to ensure our supply chain our investment decisions. Replacement set in 2014, three years early in 2017: adheres to best practice for sustainability and refurbishment of equipment or DD20% reduction of Scope 1 and social responsibility, partnering with choices of new buildings can be steered

and 2 CO2e per FTE by 2020 suppliers and service providers which by the environmental performance against a 2014 baseline; reflect our own values. In our Group of each option. DD15% reduction of Scope 1, 2 environmental policy, we make several Supplier partnerships and 3 CO e per FTE by 2020 commitments relating to the relationship 2 One example of our supply chain against a 2014 baseline. with our suppliers: work this year is with Wilson Vale, DDminimising our climate change By January 2018 we had already the caterer in our York staff restaurant, impacts and purchasing, where achieved a 19% reduction in our Scope who work with us to promote a range possible and appropriate, energy 1 and 2 CO e per FTE emissions, and of sustainable initiatives: 2 from renewable sources; we had exceeded our Scope 1, 2 and 3 DDa diet rich in local and seasonal DDsourcing consumables (wherever CO e per FTE target, delivering a 22% produce in order to reduce carbon 2 possible) from sustainable sources; reduction. We will therefore set new emissions from food transport DDreplacing air conditioning gases stretch targets and timescales. and provide healthy options; with environmentally preferable DDuse of Marine Stewardship Council Guided autonomy alternatives; favouring, where (MSC) certified species of fish, In 2017 we significantly revised how appropriate, the purchase and use which reduces damage to our we manage our environmental activities, of energy efficient office equipment oceans and preserves sealife introducing an expanded and improved and communications systems; for future generations. new approach called guided autonomy DDinvolving our stakeholders, (GA), which sets the policy context including our employees, Since 2016, Wilson Vale have: for local activities across the Group, contractors, suppliers, investors DDensured all food packaging supports local teams and provides and customers in the development is compostable, including single assurance for external reporting. of our environment strategy. use cutlery, paper straws, and coffee cups; Please see page 38 for a detailed case We update our environmental policy DDintroduced reusable coffee study of GA. regularly and will be reviewing it again cups with a discount on drinks in 2019. 5.1 Engaging with our supply chain for their use; We are currently developing a new way Over time our premises service providers DDall plastic condiment bottles to manage our third-party procurement, have been issued with an electronic have been replaced with contracting and management processes copy of this policy statement and, china containers;

30 Hiscox climate report 2018 3 Risk analysis 14 Informing 18 Supporting 24 Incorporating 30 Reducing the 42 Reporting public policy customer climate change environmental and being climate into investment impact of accountable awareness strategies our business operations

We work with Wilson Vale, the caterer in our York staff restaurant, to promote a range of sustainable initiatives.

Hiscox climate report 2018 31 3 Risk analysis 14 Informing 18 Supporting 24 Incorporating 30 Reducing the 42 Reporting public policy customer climate change environmental and being climate into investment impact of accountable awareness strategies our business operations

Set context

Support Assurance

Internal stakeholders External stakeholders

Case study a broader mandate to set the context DDmeasuring results; Guided autonomy for environmental policy, processes DDcomparing performance externally; Our Group property services team, and management structures to ensure DDcontinuing to improve. led by their projects and compliance consistency and continuity in how all The training and practice of GA manager, includes operational staff areas operate, and to build in assurance. continues to be rolled out across the and local facilities managers. Their Group property services provide the business, with further activity this year. remit is to ensure business operations guidance, support and mechanisms that DDIn February 2018 our US comply with Group environmental underpin the new approach, embedding management team were trained policy, including delivering efficient compliance into everyday processes, in environment related initiatives, and optimised operation of facilities and under GA report to the Executive policies and reporting, and good and reducing environmental impacts. Board quarterly. practice in implementing building This expert internal team is supported Our aim is to bring all areas of Group management processes where required by a range of external activity to a consistent, improved and resources. consultants who provide advice on competency level. The disciplines DDThe team were asked to repeat the their specialist subjects. covered all have a direct effect on the exercise in Europe, focussing on In 2017 the team revised Hiscox’s environmental performance of business local operations, so in June 2018 environmental management approach. operations. Now that we are into the all the regional European operations After reviewing current practice they implementation phase, GA supports teams met for locally-specific created and introduced the guided local Hiscox businesses in overcoming training and a workshop sharing autonomy (GA) management model challenges by offering training, advice, best practice. across the whole of Hiscox Group’s analysis, finding solutions and setting The GA model of centralised influence activities. GA is one of a suite of Group up robust processes and policies. and support across all divisions governance and corporate responsibility GA delivers best practice by: of Hiscox fits well with the way our disciplines, including business continuity, DDworking collaboratively across the business is developing. health and safety, building compliance Group and sharing best practice; and security, and the environment. Since GA encompasses all aspects DDdelivering local training to of environmental impact management, The goal is to achieve or where implement better processes and it affects and supports all of the possible exceed compliance with practice but tailored to local needs following activities described in this relevant environmental legislation in DDcreating sustainability champions report’s subsections. each operating territory. After reviewing at senior management level and progress of the launch of GA in 2017, within local teams; the approach has been reinforced this DDfacilitating increased knowledge and year by liaison with chief operating understanding of how sustainability officers and local management teams, affects business activities; by internal communication and tailored DDgenerating innovative solutions training, so that GA policy will be to incorporate sustainability followed, and local compliance can be into business practices, such checked. GA is sponsored by the Hiscox as moving to agile workplace Executive Board which gave the team practices where beneficial;

32 Hiscox climate report 2018 3 Risk analysis 14 Informing 18 Supporting 24 Incorporating 30 Reducing the 42 Reporting public policy customer climate change environmental and being climate into investment impact of accountable awareness strategies our business operations

DDintroduced free flavoured water For the past few years we have worked rises awareness amongst our to reduce bottled water purchases; with our external carbon reduction employees and motivates changes in DDpurchased ‘ugly’ fruit and experts to identify the biggest behaviour. It can also focus our whole vegetables for use where possible; opportunities to reduce our carbon company on addressing the areas that DDfeatured regular CSR+ days, impact, on which we can then focus most need improvement. featuring cold buffet lunches – our efforts. Setting emissions targets which have saved energy. The introduction of GA now provides The Hiscox facilities management They have also had a number of waste assurance that our policy objectives strategy has always been clear; to initiatives onsite: are met by our environmental activities provide a high quality workplace where DDall food waste is collected by BIFA during the year. our workforce can thrive. Part of this and sent to anaerobic digestion; is managing efficiency including energy Policy commitment DDall waste cooking oil is recycled and water use in all buildings occupied In our environmental sustainability so that it now goes into biodiesel; by Hiscox, particularly our largest offices policy, last revised in 2016, we make DDall plastics will be eliminated by at Great St Helen’s in London, Hiscox several commitments relating to the the end of August. Once all water House in Colchester and now at the impacts of our internal operations bottles are sold: a new ‘hydration new Hiscox Building in York. and physical assets: station’ will be introduced. DDorganising these in compliance We set two business operations targets Landlord relationships with relevant environment for environmental performance in 2014: The introduction of guided autonomy legislation and regulation and DDa global target to reduce Scope has modified how we influence landlords, other requirements; 1 and 2 emissions per full time managing agents and operators of our DDroutinely measuring and recording equivalent (FTE) employee by offices. As mentioned, best practice is the amount of energy, water 20% by 2020, relative to 2014 being shared across the whole Group and office consumables used in (almost met by end of 2017 with on how to manage environmental Hiscox office premises, and setting a 19% reduction); impacts arising from landlords. objectives and targets with the aim DDa global target to reduce Scope of reducing consumption over time; 1, 2 and 3 emissions by 15% For example there are now expectations DDoperating waste management by 2020, relative to 2014 (fully that landlords should recycle waste, systems that promote the recovery delivered, and exceeded in 2017 provide detailed energy usage monitoring and/or recycling of as much waste with a 22% reduction). data, and engage in air conditioning as possible; optimisation, or undertake work to Hiscox is outperforming the targets DDminimising the impact of our introduce these practices as soon and the reductions were achieved business related international as practicable. three years ahead of schedule, in 2016. travel through the deployment Therefore in 2019 we expect to be Having achieved a certain level of of alternatives such as video working towards new stretch targets maturity and efficiency, we now hold conferencing where practicable; that will take into account the growth an annual review of a number of key DDinvolving our stakeholders, of our retail business. We expect that performance indicators, including half including our employees, our new targets will look further ahead, hourly energy metering, to spot issues contractors, suppliers, investors to 2025. and opportunities which may then need and customers in the development to be addressed by landlords. of our environment strategy; DDmonitoring, measuring, auditing We research and identify appropriate and reporting on our environmental and reliable emerging technologies for performance, and setting adoption at our premises. Our success objectives and targets with the in driving change is reflected in the aim of achieving improvement over improved environmental performance time and of being recognised as of our operations. See section 5.3 for performing well on these issues further details. within the insurance sector. 5.2 Measuring and reducing See also the commitments to our the environmental impact of our suppliers listed in section 5.1. business operations

We measure our CO2 emissions globally This year we reported externally and each year undertake extensive and communicated internally company analysis to spot trends and opportunities. wide our Scope 1, 2 and 3 CO2e We benchmark ourselves against other emissions. This was broken down organisations and between into relative performance reporting by areas internally. business unit for the first time, which

Hiscox climate report 2018 33 3 Risk analysis 14 Informing 18 Supporting 24 Incorporating 30 Reducing the 42 Reporting public policy customer climate change environmental and being climate into investment impact of accountable awareness strategies our business operations

CO2e emissions reductions Compared to the 2014 baseline Hiscox has made the following reductions.

% decrease Target 2014 2015 2016 2017 2014-17 for 2020

Tones CO2e per FTE – Scope 1 and 2 1.2 1.2 1.14 .97 -19% -20%

Tones CO2e per FTE – Scope 1, 2 and 3 3.68 3.22 3.02 2.88 -22% -15%

Carbon footprint

2013 2014 2015 2016 2017 Scope 1 – company car, onsite gas combustion, refrigerant loss 478 446 591 612 742 Scrop 2 – purchased electricity 1630 1916 2113 2175 1889 Scope 3 – air, rail and personal car business travel 3588 4906 4538 4596 5151 Total – Scope 1 and 2 2108 2362 2703 2787 2631 Total – Scope 1, 2 and 3 5696 7269 7241 7383 7782

Tones CO2e per FTE – Scope 1 and 2 1.27 1.2 1.2 1.14 .97

Tones CO2e per FTE – Scope 1, 2 and 3 3.44 3.68 3.22 3.02 2.88

Carbon footprint Scope 1 Scope 2 Scope 3 Scopes 1 and 2 per FTE Scopes 1, 2 and 3 per FTE

Tones Tones CO2e CO2e total per FTE 9,000 4.00

8,000 3.50

7,000 3.00

6,000 2.50

5,000 2.00 4,000

1.50 3,000

1.00 2,000

0.50 1,000

2013 2014 2015 2016 2017

34 Hiscox climate report 2018 3 Risk analysis 14 Informing 18 Supporting 24 Incorporating 30 Reducing the 42 Reporting public policy customer climate change environmental and being climate into investment impact of accountable awareness strategies our business operations

Carbon footprint by country Scopes 1, 2 and 3

UK

US

Bermuda

Germany

The Netherlands

Singapore

Portugal

Guernsey

France

Thailand

Belgium

Spain

Ireland

Quantifying our carbon emissions Hiscox’s total global carbon footprint footprint, now at 54% of the total. This

Hiscox has collected CO2e data for UK for all scopes in 2017 is 7,782 tonnes can be seen in the chart above. sites since 2010 and for all of our global CO e (compared with 7,269 in 2014). 2 12% of our total global carbon is now operations since 2013. As in earlier This is a 7% increase in absolute from renewable sources (electricity at years, in 2018, we have continued to emissions since 2014 but is aligned Great St Helen’s, Colchester, and York), work with an expert building services with our longer term targets .This year which accounts for 22% of the UK engineering consultancy to complete a we have experienced significant growth, total carbon. series of detailed energy usage audits with a 13% increase in FTE and 14% across our UK offices. increase occupied floor space since We report a summary of these figures 2016. The overall efficiency of our with commentary in our Annual Report We are currently working to ensure a operations per FTE therefore improved, and Accounts, the 2017 edition of which full accounting of CO e at all sites and 2 as can be seen in the table earlier. is available online. for all activities. Any best practice which emerges will be shared through the Our global Scope 1 and 2 tonnes CO2e GA approach. per FTE decreased from 1.20 in 2014 to 0.97 in 2017, a decrease of 19% against Aiming to ensure a more accurate the baseline year. The global tonnes measurement of usage and to identify CO e per FTE for all scopes decreased areas for improvement, in 2017 for each 2 from 3.68 in 2014 to 2.88 in 2017. building we mapped half hourly energy consumption over working and non- The UK carbon footprint for all scopes working days. We identified significant is estimated at 4,195 tonnes CO2e. savings and implemented them Thus, in 2017, Hiscox UK continues to throughout the year. constitute the majority of the total global

Hiscox climate report 2018 35 3 Risk analysis 14 Informing 18 Supporting 24 Incorporating 30 Reducing the 42 Reporting public policy customer climate change environmental and being climate into investment impact of accountable awareness strategies our business operations

Almost all of our offices in Europe, the US and Bermuda now have waste sorting and some level of recycling.

Travel in 2018 on our use of video conferencing improve these, most recently our Hiscox has a travel policy which to see what impact it is having, enabled French offices; discourages non-essential business by changing the technology platform DDwhere possible in Europe personal travel and the use of alternatives where we use. bins have been removed to possible. However, as an international encourage recycling correctly Local efficiency initiatives business, we engage in unavoidable and waste reduction, for example In 2017-18, Hiscox continued to travel, particularly as the regulatory recently in Luxembourg; introduce initiatives for energy and environment of the insurance industry DDsome offices have reduced or carbon saving across the business with drives a need to conduct some business even eliminated plastic bottle property services taking a more global in person. As we continue to be and cup use, by using washable role through guided autonomy. successful in reducing our emissions cups and installing mains water from other business activities, travel Some highlights this year include: drinking fountains, for example becomes more dominant in our DDour London site has become Brussels and Hamburg; emissions. Business travel is the main a zero-waste-to-landfill location, DDmany locations are working contributor to the Hiscox Group carbon meaning the overall UK recycling to source Fairtrade coffee and footprint, accounting for 62% in the UK rate rose from 76% in 2015 to eliminate coffee pod machines and 66% of the total global footprint. 94% in 2017; in their offices, most recently We are committed to reducing travel DDour London, York and Colchester in Lisbon; impacts and, in 2017-18, we published UK sites now all use renewable DDIT in the UK have an equipment league tables on our intranet by country electricity supplies, covering the recycling policy where old or and emissions scope. It included links majority of our UK electricity usage. redundant equipment is given for employees to see how they could This reflects a step-change in to a recycling specialist for re- reduce their emissions. We continue strategy and in our expectations of use. In 2018 so far they have to make significant investments in the buildings we operate ourselves; decommissioned and recycled alternatives to travel, including use DDalmost all of our offices in Europe, 92 monitors, 37 PCs/terminals and of video conferencing and our internal the US and Caribbean now have 16 laptops. In addition early this communications platform, the Hiscom waste sorting and some level year we began selling our older but portal. We have started gathering data of recycling, and are seeking to fully-functioning iPads and iPhones

36 Hiscox climate report 2018 3 Risk analysis 14 Informing 18 Supporting 24 Incorporating 30 Reducing the 42 Reporting public policy customer climate change environmental and being climate into investment impact of accountable awareness strategies our business operations

to existing members of staff. allows a larger legacy of skills and that is teeming with wildlife noises from All money raised given straight community building for the local the birds, the beauty of the butterflies to charity.See also the case study people, as well as carbon offsetting and other insects which are evidently on page 43 on the efforts of our and economic improvement to be useful in pollination of crops in the forest staff in Bermuda. created by ensuring that there is funding adjacent farms. The community's continuity, so that the project workers possession and ownership of the forest Carbon neutral can concentrate on delivering their goals as their communal resource and source In 2017 Hiscox has continued with our better. It also allows Hiscox staff to see of livelihood and their enthusiastic commitment to being a carbon neutral the longer-term benefits materialise, and participation in the project also is a business. After a significant evaluation to engage in other ways. For example unique progress that accompanies exercise, we chose to offset our 2016 this year we have been invited to send the project's growth.” In addition the global carbon emissions of 7,400 a group out to visit the project in Kenya project brings social benefits – improved CO2e equivalent through a reducing and help with planting. livelihoods have allowed five children in deforestation project in the Amazon the community to finish school and one In Kenya, the project coordinator, Rainforest in Brazil twinned with a couple to get married last year. reforestation programme in Kenya’s Mburu Waiganjo reported back: “What Great Rift Valley. Our carbon offsetting makes me personally proud is the fact is coordinated in partnership with that our project has reversed a forest Carbon Footprint Ltd. degradation trend and is helping to restore the water catchment ecosystem In 2018 we plan to continue to support function of the forest. The ‘don’t care’ the same project to offset our 7782t attitude towards the forest conservation

CO2e from 2017. Choosing to engage that had prevailed has now gone and in such long-term support relationships yielded the current lush green forest

We offset our 2016 global carbon emissions through a Kenyan tree planting scheme accredited by Carbon Footprint.

Hiscox climate report 2018 37 3 Risk analysis 14 Informing 18 Supporting 24 Incorporating 30 Reducing the 42 Reporting public policy customer climate change environmental and being climate into investment impact of accountable awareness strategies our business operations

Switching from paper to process of collecting and querying In addition, guided autonomy is raising electronic communications data earlier has helped to ease the the profile of environmental issues Hiscox uses the latest communications pressure of completing the carbon across the business and sharing technology, including social media, to footprint in time or mandatory best practice between teams. communicate with our customers and reporting deadlines. As an example of employee-led brokers about climate change and to In 2017, we again received a detailed innovation, our Hamburg office chose encourage them to assess their own management report at the end of to provide a bicycle for visiting clients risks. The information we provide to our the reporting period, incorporating locally. Small functional changes in how customers is reviewed and updated additional regional analysis in order everyday work tasks are carried out on an ongoing basis, based on latest for offices to understand their own can be very effective. thinking and climatic events. We avoid environmental performance better Hiscox continues to invest in and paper wherever possible, for example and providing advice on how to promote alternative ways of work. sending policies renewal notices and ensure we meet our targets. We have As one example, in London, Hiscox other key communications electronically. worked continuously to refine the data has moved all our London-based claims Customers can request paper copies capture process, in particular for travel team to a flexible office environment but these are no longer automatically and utilities, and the data has been focussed on ‘functional use’ with more provided. Where paper is required, independently verified. See the details efficient office utilisation. We continue we use paper certified by the Forestry in section 5.2. Stewardship Council. significant investment in more energy Hiscox is fully compliant with UK efficient hardware and our adoption See section 3 for the various ways we government carbon reporting of cloud computing which is also communicate with our stakeholders. requirements for Scope 1 and 2 carbon more energy efficient and supports 5.3 Disclosing our direct emissions emissions and the Energy Savings employees working from any location. of greenhouse gases Opportunity Scheme (ESOS) reporting These measures are having a positive Carbon footprint calculations requirements. We are now planning how impact on cost and carbon through Since 2008, Hiscox has used a to implement ESOS Phase 2 for all our lower utilities usage per full time third-party consultancy, to assess, UK and European operations. See further equivalent (FTE) employee. details of our reporting arrangements audit and compile data regarding our Cycling has been promoted significantly in section 6.2. carbon footprint using nationally and at some premises. Additional bike racks internationally recognised standards: CDP have been installed and our main UK DDthe WRI/WBCSB GHG protocol. Each year, Hiscox makes a full public premises now see high utilisation rates. This provides a three scope response to CDP, an international, Other examples of support in 2017 reporting framework for Scope 1 investor backed initiative by which Through the Hiscox Foundation USA we (direct GHG emissions from companies disclose their impacts on provided support to the American Red sources that are owned or the environment and natural resources Cross for its Hurricane Maria Disaster controlled by the company emitted and their actions to reduce these relief appeal. We also established Hiscox by the combustion of fuels and the impacts, collecting information on Gives in London, an employee-led release of fugitive or other GHG climate change, water, forests and committee which co-ordinates all emissions), Scope 2 (indirect GHG the supply chain. We make the results of our charitable activity. emissions from energy imports publicly available via a: and exports, e.g. electricity and DDsummary in our Annual Reports Green pension options steam) and Scope 3 (other indirect and Accounts; Staff members of the Hiscox Group GHG emissions that are a DDsummary of performance personal pension plan have access consequence of the activities in this submission; to a socially responsible investment of the company but occur at DDdetailed submission to the CDP. managed by F&C Asset Management sources owned or controlled by Plc, a signatory to the United Nations See further details on our disclosures another entity); Principles for Responsible Investment in section 6.2. DDDefra 2013 corporate greenhouse (UNPRI). F&C has the largest dedicated gas reporting guidelines. The 5.4 Engaging with our employees governance and sustainable investment assessment follows the reporting Policy statement team in Europe and offers ethical and principles and guidelines provided Our Group environmental policy makes environmental pension fund options. by Defra and covers the UK a key commitment relating to our See section 4.3 for details of our business operations of Hiscox, employees; encouraging awareness investment approach. held online at the Greenhouse Gas of environmental issues and individual Conversion Factor Repository; responsibility amongst our employees DDcarbon footprint assessment and supporting them in completing over the period of 12 months at appropriate environmental initiatives quarterly intervals. Starting the within their communities.

38 Hiscox climate report 2018 3 Risk analysis 14 Informing 18 Supporting 24 Incorporating 30 Reducing the 42 Reporting public policy customer climate change environmental and being climate into investment impact of accountable awareness strategies our business operations

Case study The team also engages directly with DDKeep Bermuda Beautiful Awards Bermuda green team an extensive range of external projects, ‘Best Adopt-a-Spot’ Award 2015 Our Bermuda office has a very organising activities such as local DDReef Watch – in 2017 Hiscox active group of volunteers who have clean- up team events, donating to sponsored the annual Reef Watch implemented a number of grassroots or sponsoring local ecological NGOs, event for the fifth year in a row, initiatives over the years since the office and sponsoring and participating in with various staff members helping first opened at the end of 2009. Living projects such as Reef Watch, a citizen to collect valuable data about in an island environment, the Bermuda scientist project that collects important Bermuda’s coral reefs and to green team is very aware of the coral reef data and raises money for raise over $15,000 for coral reef environmental impact of any and all coral reef research. The team also conservation and monitoring. activities, and the impacts of climate sponsors the local Going Green This year’s initiatives included change on their own location. magazine and submits an article each sponsorship of five local environmental They have engaged in a number of year. This year’s piece was on how charities and projects, an ongoing internal activities and projects every year to minimise the impact of special commitment to keep Coney Island including raising awareness amongst occasions, whether getting married Park cleared of litter, organising several colleagues via training, discussion and or celebrating Christmas. lunch and learn type talks and awards, influencing supplier selection for Highlights over the years have included: documentary showings for employees, more sustainable choices in everything DDUK House of Lords – in 2015 and a green team newsletter, continuation of from office supplies to marketing at the request of Charles Kinnoull, the tradition of awarding the Hiscox materials and catering supplies, and the team provided a long list of the Bermuda Green Trophy, and various implementing office initiatives such as various green measures that have reminders and projects to reduce waste Hiscox reusable bags, a pod-free coffee been put in place by the Hiscox and consumption including the leasing machine, coffee grounds recycling, and Bermuda Green Team in order of a sparkling water machine. ensuring electronic equipment settings to provide inspiration for the types See more detail of our Bermuda are optimised to save energy. of initiatives that they could headquarters’ environmental initiatives They freely share their expertise with adopt themselves; in section 2.2. colleagues in other countries, as well DDGreenrock Green Workplace as other local companies, their families Awards – winner of tenant category and communities through a number 2011 and 2012, and honourable of initiatives and events every year. mention 2015;

Hiscox climate report 2018 39 3 Risk analysis 14 Informing 18 Supporting 24 Incorporating 30 Reducing the 42 Reporting public policy customer climate change environmental and being climate into investment impact of accountable awareness strategies our business operations

Our Hamburg office provides a bicycle for visiting clients.

5.5. Planning for the future travel as a key potential area for Role of the insurance industry Hiscox planning improvement in data collection We believe that since climate change Hiscox has an excellent track record and carbon and cost reductions; is a global and systemic issue, any of reductions in our business climate DDcontinue our programme to solutions require collaboration between change impacts. In 2017-18, we improve building energy efficiency; many parts of the industry and beyond. committed to: DDimplement a programme of Therefore there is a wider insurance DDcontinue to work to achieve our communications to further raise industry role to: target to reduce Scope 1, 2 and the profile of sustainability DDshare good practice across 3 emissions by 20% by 2020, with employees; the sector; relative to 2014; DDpromote the best practice DDimplement the findings of our In 2018-19 we plan to: achieved by the insurance sector; D energy audit; Dfurther develop our systems to DDwork with our supply chains to DDreview progress on our collect and analyse office data encourage improvements in their commitments over the last more often to enable more frequent environmental performance. five years. environmental monitoring and improved data capture; On an ongoing basis, we commit to: DDsharing our insights from this data D Dcontinue to improve our systems to drive better transparency and for collection of data on our further improvements; environmental impacts; DDset new targets for CO2e D Dcontinue to publish information emissions reductions beyond on our greenhouse gas emissions; D 2020 for Scopes 1, 2 and 3; Dengage with our stakeholders, DDfurther implement guided including suppliers and autonomy, embedding its practice employees, about improving through training, sharing best their environmental impacts; practice and offering support DDcontinue to focus on business and advice across the Group.

40 Hiscox climate report 2018 3 Risk analysis 14 Informing 18 Supporting 24 Incorporating 30 Reducing the 42 Reporting public policy customer climate change environmental and being climate into investment impact of accountable awareness strategies our business operations

In the UK, we have an equipment recycling policy where old or redundant equipment is given to a recycling specialist for re-use.

Hiscox climate report 2018 41 3 Risk analysis 14 Informing 18 Supporting 24 Incorporating 30 Reducing the 42 Reporting public policy customer climate change environmental and being climate into investment impact of accountable awareness strategies our business operations

6. Reporting and being accountable

Summary by reviewing the effectiveness of risk DDthe Group Solvency Self- The Hiscox Board recognises that management activities and monitoring Assessment (GSSA) report, which climate risk has significant social and the Group’s actual risk exposure, builds on many of the components economic impacts. Hiscox ensures that to inform Board decisions. The Risk described above to summarise consideration of climate change issues Committee relies on frequent updates the Group’s Own Risk and and support for ClimateWise principles from within the business and from Solvency Assessment (ORSA). have the support of our most senior independent risk experts. This group For more details of ORSA in general, management and are included oversees the risk management see page 40 of the current edition in our business strategies and Board framework, development and operational of our Annual Report and Accounts. discussions. We report on our implementation of Hiscox’s risk progress annually. management policies and procedures Risk management and advises the Board on how best The risk management framework 6.1 Incorporating climate risk to manage the Group’s risk profile. operates as a continuous process that into Hiscox business strategy is embedded in the Group’s culture. at Board level During 2017, the Board looked It is supported by a central risk team that Board level responsibility at a number of risk-related matters: reports directly to the Risk Committee D The Hiscox Board has overall Dthe Group’s risk profile, compared of the Board. The risk team monitors responsibility for every aspect of with its risk appetite; and reviews the risk profile and the D business performance. Our continuing Dindependent second line of effectiveness of our risk management success depends on how well we defence (independent oversight) activities, including compliance with, understand and manage the significant model validation findings on the and recommendations for any changes business risks we face, including those Group’s risk and capital models; to, our defined risk strategy and risk D resulting from climate change. This risk Drisk reporting focused on topical appetite. In turn, the central risk team knowledge informs every important live issues with actions and is supported by several Group-wide operating decision the Group makes. mitigation plans; and local forums focusing on specific D Thus, the Board has responsibility Dregular reporting on the risks risk types. for approval of Group risk policies determined by the Board to be and procedures which address every critical to the Group; Climate-related risk is an inherent aspect of risk, identification, appetite, DDstress and scenario testing, aspect of some the risks captured. measurement, mitigation, monitoring, performed to identify and measure Results are also communicated across reporting and governance. the likelihood and impact of the business and reported to the Risk potential plausible but extreme Committee of the Board and to the The Board is at the heart of risk events. The Board considered Board itself whenever necessary. Once governance and is responsible for and challenged the findings and we have assessed our risks, we manage setting the Group’s risk strategy associated action plans for the them through a combination of: and appetite, and for overseeing risk D scenarios, which had been Da diversified portfolio; management (including the risk D designed to test the resilience Da clearly defined risk appetite; management framework). To facilitate D of the business plan to major Dunderwriting discipline based on management of the business, the and minor shocks; sound decisions aligned with the Hiscox Board appoints and authorises DDspecific risk reviews, providing Group’s overall strategic objectives a number of committees to manage a deeper understanding of key and risk appetite; each aspect of the Group’s affairs, D risks and potential exposures Dtailored modelling resources; each chaired by a Board member. DDstress and scenario testing; to the business; D Each committee operates within DDupdates to the risk and control Dmitigation of the effect of catastrophes and unexpected established written terms of reference register, which summarises the concentrations in risk through and each committee Chairman reports Group’s material risk exposures reinsurance. directly to the Board. Of specific and the key controls in place relevance to climate change is the Risk to mitigate them, as agreed with Identifying climate change risks Committee of the Board. The Risk risk owners; The risk team has identified catastrophic Committee advises on how best DDupdates to Group risk policies, and systemic insurance losses from to manage the Group’s risk profile addressing the Group’s main risks; damage caused by a range of

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catastrophes, including natural events industry bodies and government on the customers and suppliers on climate such as hurricanes and earthquakes, establishment of the Flood Re scheme, change issues is by acting at a global as significant enough to be rated as designed to ensure flood insurance or at an insurance industry level, rather principal risks to the business. In in the UK remains widely affordable and than as an individual insurer. addition, Hiscox’s current list of most available. We have been pleased to Accordingly, in addition to our individual significant future disaster scenarios are contribute to providing flood cover to actions, we are focusing our levels all based on natural catastrophes: more homeowners through this. We are of participation in the most appropriate DDUS flood risk; taking a similar approach in the US by representative organisations of the DDJapan earthquake; providing a private market alternative insurance industry at a national DDGulf of Mexico windstorm; to the government’s National Flood and international level, in particular: DDFlorida windstorm; Insurance Program (NFIP) with our DDClimateWise; DDEuropean windstorm; award-winning Flood Plus product, DDLloyd’s; DDSan Francisco earthquake. and the recently launched FloodXtra DDthe ABI. In 2017-18, we identified US flood risk reinsurance product we have developed We are also committed to placing our as our top priority for further study to support the US insurance market. progress on public record by taking and it this will continue into 2018-19. Hiscox environmental, social part in a number of reporting initiatives, See section 1.1 for further details. and governance management in particular: Integrating climate change risk Our social and governance (ESG) DDClimateWise; across the business management is continually being DDCDP; Michael Schenstrom, Director of Group improved. In 2015-16 Hiscox DDEnergy Savings and Finance Operations is Hiscox's commissioned a strategic and Opportunity Scheme. business lead on climate change, benchmark review of our approach to See further details in section 5.2 reporting to the Group Chief Financial ESG matters to test whether it remained for detailed figures from our emissions Officer and to the Board. Michael and fit for purpose. The review consisted reporting for this year, and section 6.2 his team have strategic and day-to-day including internal stakeholder reviews, below for information on how and where responsibility for the environmental gathering peer investor and asset we report our climate-related data performance of our business operations. manager views, and reviewing documents. The scope was to explore and risks. Michael also endorses our external the opportunities and efficiencies of our Finally, we are committed through environmental reporting, including business operations, as related to ESG guided autonomy to encourage this climate report, champions the performance. It aimed to identify best our individual businesses to work implementation of our guided autonomy practice, where we wanted to sit in ESG towards excellence in environmental model (see section 5.2 for more details) rankings, compared to our business performance and to gain local recognition and our efforts for ClimateWise. Our cohort, define and focus our approach in their region (see section 5.2). ClimateWise participation spans the and benchmark our current practices. global activities of the business and is key to the integration of climate The most recent example is our change issues. The business areas introduction of our new guided involved include: autonomy framework this year. Within 12 DDrisk modelling; months we had reviewed our current DDrisk management; practice, devised a new way DDgroup communications; of managing ESG locally but in line with DDmarketing; corporate needs and best practice, DDgroup investments; and launched the new approach across DDgroup property. our business. We are continuing this year to fully embed GA through training Each of these business areas has and support for our business teams responsibility for integrating climate in different regions. For more information change issues into their work, on GA see section 5.2. communicating results across the business using our collaborative forums We also update our environmental policy and escalating issues to an appropriate regularly, and plan to do so again in level of management. 2019. See section 5.2 for more detail on our current policy and how we An example of how this risk integration manage our environmental impact. creates results for both Hiscox and our customers, can be seen in our work External engagement to boost flood insurance solutions in the We recognise that the most effective UK and then US. We worked with way to engage with policymakers,

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Hiscox Annual Report and Accounts 2017.

6.2 Annual reporting on climate change issues. Our advocacy Hiscox is keen to continue working with Hiscox Annual Report and Accounts of ClimateWise principles can also ClimateWise. In May 2018, Hiscox Each year, Hiscox includes a statement be found on the environmental pages participated in the ClimateWise about our approach to environmental of our corporate Group website. The roundtable to discuss the timing issues, our commitment to ClimateWise environment homepage has been and details of implementing the TCFD principles and details of our environmental updated this year to emphasise our view Recommendations on climate-related performance at overall corporate level of climate change as a challenge, and disclosure. See section 2 for more about – within our Hiscox Annual Report and our membership of ClimateWise. these recommendations on disclosure Accounts. See pages 48 and 49 in the of climate related risk. 2017 report. Each year, we publish the latest version of our annual climate report as our CDP reporting ClimateWise submission to ClimateWise, endorsed Hiscox has chosen to make a full public ClimateWise is a global network of by senior management. We respond to response to CDP (formerly the carbon leading insurance companies united disclosure project) and has done so each of the ClimateWise principles and by concern for climate change and every year since 2012. This international, subprinciples and make the report the risks it presents to both society and investor-backed initiative enables available in the public domain. We work the insurance industry. ClimateWise is companies, cities, other organisations convened by the University of Cambridge hard to implement the ClimateWise and even regions to disclose their Institute for Sustainability Leadership principles across our business and impacts on the environment and natural (CISL), which provides ClimateWise’s in 2017, we achieved a score of 69% resources and their actions to reduce Secretariat. Members participate in and retained our place in the top ten these impacts, collecting information action research collaborations, to help of all participants. on climate change, water, forests inform their response to climate change, We publicise each annual climate and the supply chain. and annually report on the integration report on the Hiscox website within In 2017, CDP worked with 650 of the six ClimateWise Principles across the Environment section, and on the institutional investor signatories, holding their business activities. ClimateWise website. We also provide US$87 trillion in assets, to understand As founding members of ClimateWise, information to support the Lloyd’s the risk in their investment portfolios. we have taken part in each of their submission, made on behalf of all Lloyd’s More than 6,300 companies disclosed annual audits of business performance ClimateWise members. their information to CDP, generating

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the world’s largest database of in June for all the European site DDevaluate internally how the TCFD corporate environmental information, teams, as part of our new guided Recommendations could be covering climate, water and forest risk autonomy approach to environmental incorporated into our own climate commodities. Based on the responses management. Please see sections 5.2 change disclosures and reporting; each year, CDP publishes several reports, and 5.3 for more information on our DDengage with other stakeholders including a FTSE 250 report, in which achievements in reducing our emissions. in our sector on the development it presents its summarised findings of general guidelines for and Other indices and reporting schemes and overall scores of participants. implementation of TCFD disclosures ESG issues, such as GHG emissions CDP also provides individual feedback targets and supply chain standards, On an ongoing basis, we commit to: reports to companies with more detailed are receiving increasing attention DDcontinue our active membership analysis of their performance relative to over time particularly from institutional of the most appropriate climate sector benchmarks and leading scores. investors who may invest in Hiscox, change related organisations; Top scorers make it into the CDP Climate and from companies providing DDcontinue to report on our Disclosure Leadership Index (CDLI) sustainability ESG or climate-focused environmental and climate and Climate Performance Leadership ranking data. We receive a number change performance; Index (CPLI). of requests from these investors and DDcontinue to make our climate rankings companies every year, for report accessible on our website Since we started contributing to this information about our practices. We and highlight the importance in 2012, we have made year-on-year review them all and where possible of climate change within our improvements in our performance and appropriate, we respond to them. Environment homepage. and our scores have risen accordingly, except when the scoring system has In 2018 for example, Institutional Role of the insurance industry been updated and thresholds revised, Shareholder Services (ISS), a global As climate change is a global issue as last year. Our submission is externally provider of corporate governance and a systemic and material risk for the verified, and our current rating is a C. and responsible investment advice, insurance industry, many of the solutions awarded Hiscox a score of ‘3’ under being developed require collaborative We are committed to supporting its environmental and social quality action by many sections of the industry this disclosure and expanded the detail Score measure; where one is best and beyond. Hiscox believes that there within our 2017 response in a number practice and ten is worst. is a therefore wider role for the insurance of key areas. We are also aware that industry and ClimateWise to: Hiscox membership of the FTSE4Good over time CDP will be aligning more DDpromote climate change risks Index also continues. The FTSE4Good closely with the disclosures required at Board level across the Series is designed to help investors by the TCFD. See section 2.1 for more insurance industry; integrate environmental, social and detail on our own analysis of the TCFD DDimplement a Board level governance (ESG) factors into their Recommendations in ‘Climate-related ClimateWise working group investment decisions. financial disclosures’. on climate change. Hiscox is a member of the UK Energy The individual ratings identify companies Savings Opportunity Scheme (ESOS), that better manage ESG risks and are a mandatory energy assessment used as a basis for indexes which in scheme, with the Environment Agency turn are used by investors of tracker acting as UK scheme administrator. funds, structured products and as a We are required to carry out ESOS performance benchmark. The ESG assessments every four years, involving Ratings are also used by direct investors audits of the energy used by our who wish to incorporate ESG factors buildings and transport to identify cost into their investment processes, and as effective energy saving measures. a framework for corporate engagement and stewardship. As required, we submitted our first set of data in December 2015, and will 6.3 Planning for the future submit again to the new Europe-wide Hiscox planning Hiscox is committed to maintaining phase two scheme in 2019. We revisited the awareness of climate change opportunities across all European throughout our business and to report operations in 2017 and used this on our progress. The introduction information to drive new energy of guided autonomy this year has savings, helping us meet our emissions superseded and integrated a number reduction targets two years early. of smaller planned actions from last year. We share best practice, for example In order to further these aims in 2018-19, by holding a training meeting in Lisbon we intend to:

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Our progress

Climate-related risk is a global and systemic issue which cannot be addressed by one company acting alone. Hiscox engages with other parts of the insurance system and believes there is a wider insurance industry role to co-operate with other stakeholders such as Government, research bodies and NGOs, other business sectors and industries, and certain partners suppliers and customers to address climate-related risk. More specific details of this work are included for each sub-principle under ‘Role of the insurance industry’. What follows is a record of our actions in the previous 12 months, and what we plan to do in the next 12 months.

Section 1 Hiscox has a strong tradition of leading-edge risk research. In 2017-18, we delivered on our commitment to: DDcontinue to develop our internal and external research initiatives and relationships; DDmonitor and engage with new developments in risk modelling. DDmake US flood risk our priority area of research; DDdevelop improved location level estimates of flood risk; DDdevelop estimates of tail risk due to US flood and the clash with hurricane events; DDincorporate new earthquake models in the market into the Hiscox view of risk. In 2018-19 we plan to: DDcontinue to research US flood risk as a priority area; DDcontinue our research into changing hurricane activity rates; DDcontinue to review new models and data as they develop; DDset up regular (likely quarterly) broker engagement. Role of the insurance industry Hiscox engages with other parts of the insurance system and believes there is a wider insurance industry role to: DDconduct joint-working on climate risks; DDimprove modelling, particularly of flood risks; DDsupport accurate pricing of risks by the insurance industry to help pinpoint areas which are in need of increased risk mitigation measures; DDcontinue with further model upgrades; DDprovide products to individuals and organisations to help manage their own risk.

Section 2 Hiscox continues to influence public policy through our membership of and involvement in sector bodies such as the ABI and ClimateWise. In 2017-18 we planned to: DDwork towards including the recommendations of the TCFD in our future climate reports. As ongoing work, we also planned to: DDcontinue to strengthen links across the industry and with policy makers through participation in relevant events and initiatives; DDinfluence policy decisions, working individually or through our membership of relevant industry bodies; DDwe have been active in all these areas. In 2018-19 we plan to: DDcontinue to implement FloodXtra and FloodPlus in a deregulating US flood insurance market; DDconsider piloting a US consumer awareness campaign that raises understanding of their own flood risk.; DDcontinue to engage with the TCFD recommendations through our membership of ClimateWise and our own internal reviews. Role of the insurance industry We believe that there is a wider insurance industry role to: DDconduct joint-working on policy issues and develop a clear, cohesive industry perspective; DDlobby policymakers and regulatory bodies on behalf of the insurance industry; DDissue public statements on behalf of the insurance industry.

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Section 3 At Hiscox we are constantly reviewing how we can serve and communicate with our customers better. In 2017-18, we planned to: DDcontinue with our support for Flood Re, and our roll-out of FloodPlus; DDcontinue to work on the flood insurance gap. These have been achieved with continuing take-up of the first two products and the launch of our new FloodXtra reinsurance product in the US. We continued with ongoing work to: DDidentify new opportunities to introduce products and services which support our customers in adapting to climate change and continue increasing the number of these policies sold to new technology companies (Flood Re and FloodPlus delivered); DDcontinue to provide insurance against effects of climate change in areas of poor insurance penetration. In 2018-19 we plan to: DDfocus our energy on new products and services that best protect our customers from the risks of climate change; DDcontinue to implement FloodXtra and FloodPlus in a deregulating US flood insurance market; DDpilot a US consumer awareness campaign that rises understanding of their own flood risk. Role of the insurance industry We believe that there is a wider insurance industry role to: DDproduce reports on climate change, aimed at informing insurance customers about the issues and encouraging them to consider climate change in their decisions; DDencourage sustainability in the claims process; DDraise the profile of climate change in markets with poor insurance penetration.

Section 4 Along with much of the insurance industry, Hiscox is still developing our approach to including climate change in our investment decisions. In 2017-18, we committed to: DDissue a questionnaire to our key equity fund and bond management companies; DDinclude climate change related issues in the audit system for the selection of any new fund managers; DDreview the relevance of new investment research proposal of our partners and consider whether to become involved; DDcontinue to improve the level of information available on the Hiscox website; DDcontinue to support Tech Track 100 and offer appropriate insurance to their listed companies. Along with much of the insurance industry, Hiscox is still developing our approach to including climate change in our investment decisions. In 2017-18 our investment senior management changed, and we are taking the opportunity to review our practices generally; including how we select investment management companies and individual managers. The corporate website was redesigned this year and we continued to support Tech Track 100. In 2018-19, we will aim to: DDreview our ESG criteria and whether to only invest through asset managers within UNPRI signatory organisations; DDcontinue to support Tech Track 100 and offer appropriate insurance to their listed companies. Further ahead, we will: DDconduct the next planned review of climate change and investment in 2019, following our three-year cycle. Role of the insurance industry Hiscox has relatively little influence as a small investor on systemic issues such as climate change. Solutions need to involve many different organisations and individuals at different levels. We do seek to share our expertise in climate-related risk as an insurer with other actors in the sector and beyond, whether brokers, customers, regulatory bodies or Government departments. We participate in work with these industry stakeholders and believe that there is a wider insurance industry role to work together, to: DDbring together insurers and investment houses in order to facilitate an industry approach to including climate change issues in investment decisions; DDraise the profile of climate change risk and investment with stakeholders.

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Section 5 Hiscox has an excellent track record of reductions in our business climate change impacts. In 2017-18, we committed to: DDcontinue to work to achieve our target to reduce Scope 1, 2 and 3 emissions by 20% by 2020, relative to 2014; DDimplement the findings of our energy audit; DDreview progress on our commitments over the last five years; DDall of these commitments were delivered, in the case of the emissions targets, three years early. On an ongoing basis, we commit to: DDcontinue to improve our systems for collection of data on our environmental impacts; DDcontinue to publish information on our greenhouse gas emissions; DDengage with our stakeholders, including suppliers and employees, about improving their environmental impacts; DDcontinue to focus on business travel as a key potential area for improvement in data collection and carbon and cost reductions; DDcontinue our programme to improve building energy efficiency; DDimplement a programme of communications to further raise the profile of sustainability with employees. In 2018-19 we plan to: DDfurther develop our systems to collect and analyse office data more often to enable more frequent environmental monitoring and improved data capture; DDsharing our insights from this data to drive better transparency and further improvements; D Dset new targets for CO2e emissions reductions beyond 2020 for Scopes 1, 2 and 3; DDfurther implement guided autonomy, embedding its practice through training, sharing best practice and offering support and advice across the Group. Role of the insurance industry We believe there is a wider insurance industry role to: DDshare good practice across the sector; DDpromote the best practice achieved by the insurance sector; DDwork with our supply chains to encourage improvements in their environmental performance.

Section 6 Hiscox is committed to maintaining the profile of climate change throughout our business and to report on our progress. The introduction of guided autonomy this year has superseded and integrated a number of smaller planned actions from last year.

We planned to continue: DDour active membership of the most appropriate climate change related organisations; DDto report on our environmental and climate change performance; DDto research/review/be proactively involved in the industry discussion around how the TCFD recommendations can best be met through our climate change reporting. The corporate website has been upgraded and we have continued our memberships, reporting and involvement in discussions of the TCFD recommendations. In order to further these aims in 2018-19, we intend to: DDevaluate internally how the TCFD recommendations could be incorporated into our own climate change disclosures and reporting; DDengage with other stakeholders in our sector on the development of general guidelines for and implementation of TCFD disclosures. On an ongoing basis, we commit to: DDcontinue our active membership of the most appropriate climate change related organisations; DDcontinue to report on our environmental and climate change performance; DDcontinue to make our climate report accessible on our website and highlight the importance of climate change within our environment homepage. Role of the insurance industry Hiscox believes that there is a wider role for the insurance industry and ClimateWise to: DDpromote climate change risks at Board level across the insurance industry; DDimplement a Board level ClimateWise working group on climate change.

48 Hiscox climate report 2018 Credits Photography Page 9 NOAA National Environmental Satellite, Data, and Information Service (NESDIS) Page 31 Wilson Vale Catering Management Report design somethingbrighter.com Hiscox 1 Great St Helen’s London EC3A 6HX United Kingdom T +44 (0)20 7448 6540 E [email protected] www.hiscoxgroup.com

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