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Hiscox falls to H1 loss, as Covid-19 reserves rise to $232m

3rd August 2020 - Author: Steve Evans

Hiscox Group, the specialist insurance and reinsurance underwriter, has fallen to a $138.9 million loss for the first-half of 2020, as it lifted its Covid-19 reserves to $232 million across the group.

hiscox-logoPreviously, Hiscox had estimated that it faced roughly $150 million in claims from the Covid-19 pandemic, but this has now been raised to $232 million.

The original $150 million covered pandemic related losses in event cancellation and abandonment, media and entertainment and other segments including travel.

The addition of another $82 million of reserves is to cover expected losses in the firms Hiscox London Market, Hiscox UK and Hiscox Europe property business, UK and Europeean travel bonds business, and for third-party claims in US allied health.

Chairman Robert Childs commented, “After three successive years of heavy natural catastrophe losses, 2020 has brought a catastrophe of a different kind. The outbreak of the first global pandemic of the modern era has touched every part of the economy, and changed the way we live, work and interact with each other.

“Our industry has weathered impacts on both the asset and liability side of its balance sheet, and its role as a global risk sharing mechanism has been drawn sharply into focus yet again, with insurers collectively paying out billions in claims.”

Hiscox’s gross written premiums reduced slightly in the first-half, by 4% on a constant currency basis, but the company said it has been “keeping its powder dry” in some areas, especially reinsurance, and expects to be able to benefit from increasing rates going forwards.

Explaining the current state of the market, Childs said, “In challenging conditions, Hiscox Retail delivered a strong underlying performance, with four of our five Retail businesses delivering growth and the segment contributing more than $100 million in profits excluding net claims relating to COVID- 19. Following an expected decline in new business written in April and May, as economies were placed on pause by governments around the world, trading improved in June, with non-COVID-19 claims in line with expectations.

“COVID-19 has added further impetus to an already hardening market in big-ticket lines. In Hiscox London Market, our underwriters have done well to capture strong rate increases, up 13% in aggregate, and grow in the areas where rates are strongest, more than offsetting reductions in property binders and general liability business. In reinsurance, we have remained cautious, keeping our powder dry as we expect improvements in pricing, terms and conditions to continue. Portfolio action in both businesses is beginning to have an impact, but will take time to show through in the P&L.”

In reinsurance the company cites rate improvements of 11%, which it expects to continue and allow it to deploy more capital going forwards.

In June, Hiscox Re & ILS achieved rate increases of 29% across the portfolio at the renewals, a trend that it said continued in July and now with the majority of its book underwritten for the year, Childs said, “we look ahead to January with anticipation.”

Childs explained, “The magnitude of what many in the industry suggest may be the largest insured loss in history is gradually becoming apparent, and as a result we expect a continued contraction of risk appetites along the entire (re)insurance chain. As we approach the wind season, we are strongly capitalised, diversified and well positioned to capture opportunities in all of our markets.”

Overall, the impacts of the Covid-19 losses drove each unit to a loss for the first-half, with combined ratios of 115.7% in Hiscox Retail, 107.4% in Hiscox London Market and 123.6% in Hiscox Re & ILS.

Childs commented on the outlook for the company, “Having been in the business of risk for 47 years, one might expect to become somewhat immune to surprises, but some events have the ability to shock and amaze. COVID-19 has proven to be thus.

“What one does become used to, however, is responding to such events, and our management team has risen to the challenges presented by this pandemic.

“We have managed well as a business to handle simultaneous shocks to both our assets and liabilities; however, one thing we are not used to handling is our reputation for paying valid claims fairly and promptly being called into question. We are actively assisting the FCA to bring a prompt resolution to disputes around business interruption coverage in the UK, and we will abide by the final outcome.

“Across Hiscox, we look ahead to the second half with confidence and optimism. The underlying business is strong. We are well diversified, with opportunities for profitable growth across all of our three divisions.

“In Retail, we expect growth to continue as our digital platforms deliver efficiencies and new customers. In our big-ticket businesses, rates are rising rapidly and we are anticipating excellent trading conditions ahead.

“We may be on the doorstep of the hardest market in many years, and we have the experience, distribution and firepower to grow.”

The company has raised fresh capital a few months ago, securing roughly UK £375 million to put to work in underwriting opportunities, which so far it seems to be reserving towards January as it expects the market to be harder.

CEO of Hiscox Group Bronek Masojada, added, “The dedication of our people around the world has enabled the business to respond to the challenges of this global pandemic and to deliver a resilient performance. Our investment in technology has paid off in all areas and supported our growth in Hiscox Retail and Hiscox London Market. Our long-held strategy of balancing volatile big-ticket risks with our more steady retail earnings in the US, UK and Europe provides both stability and opportunity. We are well positioned to capture the opportunities ahead in all our markets and in all our segments around the world.”

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