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Hiscox falls to 2020 loss on COVID-19 reserves

3rd March 2021 - Author: Luke Gallin

COVID-19 reserves of $475 million, net of reinsurance, has pushed insurer and reinsurer Hiscox to a loss of $268.5 million for full-year 2020, against income of more than $53 million in 2019.

Hiscox logoThe majority of the company’s pandemic claims relate to event cancellation business, with the second largest chunk concerning business interruption and then other claims.

Excluding the pandemic, the firm’s profit would have amounted to $207 million for the year, while the combined rate would have also improved and come in below 100%.

Across the group, gross written premiums (GWP) were stable at approximately $4 billion as the combined ratio deteriorated from 106.8% in 2019 to 114.5% in 2020.

Within Hiscox Re & ILS, which comprises the group’s reinsurance activities in London and Bermuda and insurance-linked securities (ILS) activity through its family of funds in Bermuda, GWP fell by 14% to $743.4 million, driven by disciplined underwriting in light of price inadequacy at the start of the year.

The Hiscox Re & ILS segment fell to a loss of $35.1 million for the year, which is an improvement on the previous year and also a good result given the high frequency of North American catastrophe and weather-related events in the year and adverse developments in exited healthcare and casualty business.

Overall, the re/insurer achieved a 12% average rate increase in 2020, with positive rate momentum carrying through to the important January 1st, 2021 renewals.

Looking forward, Hiscox expects that its reinsurance and ILS business will benefit from the deployment of some of the proceeds from its equity raise. The company anticipates that net written premium growth will exceed growth in GWP as Hiscox Re & ILS retains more risk “in the strongest reinsurance market in several years.”

Within ILS specifically, Hiscox’s assets under management (AuM) fell to $1.4 billion in 2020 from $1.5 billion in 2019, mostly as a result of reported redemptions.

In Hiscox London Market the focus in 2020 was again portfolio quality improvement in a rising market, resulting in modest growth of less than 6%, taking GWP to just over $1 billion.

Profits in its London Market business amounted to $97.2 million in 2020 against $23.3 million in 2019, as the combined ratio improved by almost 12 percentage points to 93.7% for 2020.

More importantly, says Hiscox, the unit produced an underwriting profit of $40.7 million for the year against a loss of $26.3 million for 2019, and this is in spite of COVID-19 losses of $13 million.

“Our long-held strategy of balancing big-ticket lines and retail earnings has provided resilience in 2020. In 2021, our priorities will switch from resilience to opportunity as we are well-placed to make the most of the best conditions in the London Market in many years and the structural shift to digital across all our lines. I would like to thank our employees for their incredible efforts and our shareholders for their support,” said Bronek Masojada, Chief Executive Officer (CEO), Hiscox.

In Hiscox Retail premiums grew by 3% in 2020 to $2.3 billion although the segment did fall to a loss of $237.6 million, against profit of $169.2 million a year earlier. The segment was significantly impacted by the COVID-19 pandemic and as a result, produced a combined ratio of 120% in 2020 compared with 99.3% a year earlier.

Hiscox UK recorded GWP growth of 1.3% to $756.1 million in 2020, driven by the segment’s commercial business. In Hiscox Europe, GWP increased by almost 10% to $447.1 million against $408.4 million in 2019, with Germany remaining the “key engine” of the division.

Hiscox USA saw its GWP increase by almost 3% to $887.1 million in 2020, compared with $865 million in 2019.

The re/insurer’s Special Risks unit, which underwrites kidnap and ransom, security risks, personal accident, classic car, jewellery and fine art, saw GWP remain relatively flat at $127.8 million.

“Our priorities next year are to ensure we maintain the strict discipline of underwriting for profit, streamlining our model to simplify the business and, most importantly, energising our teams. 2021 has started well and our sense of ownership and connectedness will allow us to thrive as we capitalise on the opportunity that lies ahead of us,” said Masojada.

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