Strong growth in premiums underwritten has continued at global specialist insurance and reinsurance firm Hiscox, but the firm expects this will slow down and moderate over the rest of the year as the market remains challenging.
Hiscox reported its nine-month results this morning, citing an increase in gross written premiums 14.3% to $3.043 billion across the year so far, up from 2017’s $2.663 billion, with more than 10% growth reported for all of the firm’s segments.
In U.S. dollar terms, the Hiscox Retail insurance arm reported 16.8% growth in gross premiums to almost $1.6 billion, the Hiscox London Market unit reported 12.5% growth to $664 million of premiums and the Hiscox Re & ILS division reported 10.9% premium growth to $782 million during the first nine months of 2018.
However, these figures already reflect the slowing down of premiums underwritten, as the overall premium growth figure had been above 20% at the mid-point of this year.
The slowdown in growth is now expected to become more pronounced, as market conditions continue to challenge Hiscox.
Bronek Masojada, Chief Executive Officer, commented, “We have had strong growth, but as the market remains challenging, we will remain disciplined, and I expect our growth to moderate over the balance of the year. It has been an active third quarter for claims across the Group, both from large losses and catastrophes, and I am pleased with how we have responded.
“Hiscox Retail continues to benefit from investment in the brand, and we were pleased to welcome our one millionth retail customer. Our new European subsidiary is fully operational and expected to start writing business from 1 January 2019.”
Hiscox noted the “more active environment for both natural catastrophes and large claims in the third quarter” which it said extended into October with hurricane Michael.
Hiscox said it has reserved $125 million to cover losses and reduced profit commissions caused by Hurricanes Florence and Michael in the United States, and Typhoons Jebi and Trammi in Japan, but said the losses are within its modelled guidance for such events.
Additionally, Hiscox noted a large marine loss of $13 million that hits its specialty book, as well as a higher frequency of D&O claims experienced by its USA arm, and increased subsidence claims following a particularly dry summer, as well as a continuation of escape of water claims, that hit its Hiscox UK & Ireland division.
The London market business at Hiscox has seen rates increased across the portfolio by 5% this year, with double-digit increases in major property and 5% in casualty lines, the company said.
Hiscox also said that the Lloyd’s ‘Decile 10’ directive is having an effect, forcing “the whole market to take action in unprofitable areas.”
Here Hiscox has seen Cargo business experience rate improvement of more than 20% since August, while at the same time other areas of Lloyd’s and London business are under pressure still as overcapacity in cyber and terrorism drives pressure on pricing across those classes.
In the firm’s reinsurance arm, Hiscox Re & ILS, it experienced rates in U.S. catastrophe-exposed business that rose by mid-single-digits, while rates in the international book were down a little.
Hiscox said that it expects that the renewals in January and further into 2019 will see the market recognise “material adverse development from the hurricanes of 2017” as well as the losses from recent events in the US and Japan.
This suggests that Hiscox is anticipating some hardening of rates in these areas at the key renewals, which aligns with the hopes of other major reinsurance underwriters.
Hiscox said that the most significant rate improvement was in its risk excess book, which rose almost 10%, and its wildfire book which is up 50% year to date.
The retail business meanwhile has experienced largely flat rates to-date, Hiscox said.
The company said that its Brexit plans remain on track and that it has already started to use its Lloyd’s Brussels Subsidiary.
It noted the costs of getting ready for Brexit though, saying that re-organising its business for Brexit has cost $15 million across the Group in 2018, and it will also inject incremental capital of around €40 million into the new entity.
On the London Market Hiscox noted that, “We are seeing positive movement in rates and signs of a re-balance of influence with brokers,” in the wake of the performance related changes being made and the pressure from Lloyd’s to improve profitability.
Interestingly, Hiscox itself is going to enter 2019 at Lloyd’s with less capacity, having been approved for £1.4 billion of capacity for Syndicate 33, which is down on 2018’s £1.6 billion.
“We remain disciplined in the face of market conditions that, while better than previous years, have not improved sufficiently to warrant additional capacity for growth. We expect to maintain the level of premiums written into the Syndicate year-on-year,” the company said.
In reinsurance, Hiscox noted that the growth rate in premiums has “reduced since the half year, as strong rate improvement experienced at the beginning of the year has begun to recede.”
The company said that property catastrophe reinsurance has driven most of the growth, as well as its risk excess and specialty portfolio, where it believes the best risk-adjusted returns are.
Hiscox’s specialty reinsurance book, which includes cyber, wildfire and financial lines business, remains a key area of focus for the firm and it said it has secured positive rate improvement for itself and its third-party capital partners. The Hiscox Re ILS funds hit $1.7 billion of assets under management in the last quarter.
The company noted that typhoon Jebi has resulted in losses for the Hiscox Re & ILS unit, and that as well as “comparatively moderate exposure to Hurricane Florence” it has also experienced reinsurance losses in its marine portfolio.
Overall, the firm noted “a more active claims environment compared to the benign experience of previous years” for its risk excess and specialty reinsurance books, which has likely dented profits somewhat for this area of the business.
Hiscox has clearly taken advantage of rates to grow its portfolio significantly at the start of 2018, but with conditions uncertain the company has slowed its ambitions through the most recent quarter and expects that slowing to continue.
It will be interesting to see whether the firm’s predictions of better rates in January comes to fruition and whether another period of accelerated premium growth can be achieved in early 2019.
