In what was a challenging year for the global reinsurance industry, re/insurer Hiscox saw its Hiscox Re & ILS segment remain profitable in 2017, with management anticipating further rate increases in 2018, as well as growth across all parts of the business.
Hiscox saw its overall, pre-tax profit fall to £30.8 million in 2017 and its combined ratio weaken to 99.9%, compared with profit of £354.5 million and a combined ratio of 84.2% a year earlier.
As well as the high level of catastrophe losses, the company’s profit was impacted by a £62.8 million foreign exchange loss, which compares to a £152.4 million foreign exchange gain in the previous year.
Despite the impacts of third and fourth quarter catastrophe events, the company’s Hiscox Re & ILS segment, which covers all of its global reinsurance and insurance-linked securities (ILS) business, remained profitable in 2017, posting profit of $25.5 million ($155.9 million in 2016), but a combined ratio of 101.3% (53% in 2016).
The insurer and reinsurer said in its full-year earnings release that its Hiscox Re & ILS segment benefitted from non-catastrophe lines, fees from its management of third-party capital funds, and also some releases from prior year catastrophes.
The Chief Executive Officer (CEO) of Hiscox, Bronek Masojada, said; “Our long-held strategy of balance has served us well this year. The strong growth and profits in retail countered the volatility felt in our big-ticket businesses which were impacted by an historic year for natural catastrophes. We have made significant investments in infrastructure and brand both of which will continue. Market pricing has improved and as a consequence we have growth ambitions for every part of our business.”
The company’s Chairman, Robert Childs, explained in the earnings release that as planned, the Hiscox London Market and Hiscox Re & ILS segments reduced their exposure in big-ticket lines, and after 2017 catastrophe events and the subsequent rate increases at 1/1, expects rate momentum to continue through 2018, underlining the firm’s desire to expand, something also highlighted by Masojada.
“We have growth ambitions for all our business units, but will remain disciplined if prices are inadequate, as demonstrated by the reductions in Hiscox London Market in 2017. We continue to see great opportunities in retail, and our big-ticket businesses are expected to return to growth as they benefit from the current waves of market dislocation and improvement in the pricing environment. It is now more evident than ever that the balanced business we have been building for the last 20 years continues to give us opportunities throughout the insurance cycle,” said Masojada.
The CEO explained that within the Hiscox reinsurance and ILS operations it will look to expand in non-catastrophe lines, highlighting opportunities in both cyber and casualty, as well as an opportunity to develop new solutions via the utilisation of both traditional and alternative capital.
Looking forward, Childs said; “The $140 billion of catastrophe losses across the sector led to capital destruction and reserve deficits, and as a result the market is turning. This is not an immediate process; it comes about through each difficult conversation, each new quotation and each renewal. We have been waiting for this, and the good teams we have built and innovative products we have developed mean we are well placed to serve the needs of more customers. Being an underwriter in a changing market brings out the battler in us, and I have been proud of the resolve of our teams.
“We see plenty of opportunity to deliver profitable growth and further value to shareholders.”