Fitch Ratings has revised the outlook on Hiscox and its core entities to stable from negative to reflect the company’s recent £375 million capital raise.
Hiscox completed the capital raise last week through the issuance of 57,693,425 new Ordinary Shares.
The proceeds will be used to “to respond to future growth opportunities and rate improvement” in the US wholesale and reinsurance markets, and to withstand a range of downside scenarios from the COVID-19 pandemic.
Fitch had previously turned negative on Hiscox on April 27 to reflect uncertainty and increased risk to earnings and capitalisation due to coronavirus claims, as well as poor underlying profitability in 2019.
But the capital raise now represents a significant improvement in Hiscox’s capital position, according to Fitch, which means that the insurer now has sufficient buffers to withstand higher claims.
At the same time, the rating agency has affirmed the Insurer Financial Strength Ratings (IFS) of the core entities at ‘A+’ (Strong) and the Long-Term Issuer Default Ratings (IDRs) of the holding companies at ‘A-‘.
Fitch believes that Hiscox will maintain a very strong capital position over the next two years, even if the adverse impact from the coronavirus situation is reasonably severe.
Hiscox currently expects a maximum of $175 million losses from event cancellation and other segments, including travel, relating to the coronavirus pandemic.
The company maintains that business interruption losses are not covered but this has yet to be tested in the courts. Despite this, they have provided a risk scenario which suggests a range of modelled outcomes of between GBP10 million to GBP250 million of business interruption claims net of reinsurance.
But even taking the top end of this guidance, Fitch believes the £375 million capital raise will enable Hiscox to absorb losses of this magnitude without a significant weakening of capital.
