Global insurer and reinsurer Hiscox remains confident in its reserving philosophy and will continue to have positive reserve run-off at the half-way point of 2019, according to Chief Financial Officer (CFO) Aki Hussain.
Hiscox announced last week in a trading statement that it had strengthened its reserves for Typhoon Jebi and Hurricane Michael by $40 million, while at the same time revealing expected profit for the first six months of 2019 of between $150 million and $170 million.
Following the announcement, Hiscox CFO Hussain held an earnings call and emphasised that the company’s reserving philosophy and methodology hasn’t changed, adding that Hiscox continues to adopt a “prudent approach.”
“But we won’t get it right every time. And, we typically write over 100 different lines of risk and across those 100 lines we tend to have favorable run-off and we pent up for a very long time, and we will continue to have positive reserve run-off at the half-year. Reserve releases will be significantly positive, just not as positive as last year,” said Hussain.
He continued to note that initially, the $2 billion to $4 billion industry loss range for Jebi has now increased substantially to between $14 billion and $16 billion, which is a fairly substantial jump that has subsequently resulted in a lot of loss creep for many insurers, reinsurers, and insurance-linked securities (ILS) market participants.
“Now, we tend to be very cautious but not ultra-cautious because there’s a balance to be achieved,” added Hussain.
The Hiscox CFO told listeners that the fact Japan hadn’t experienced an event like Jebi for around 25 years meant that some data points were outdated, which, combined with a significant amount of high value construction and some demand surge as a result of the Rugby World Cup and the Olympics, has also contributed to claims inflation.
“So, those are kind of the key factors, but we remain confident in our reserving philosophy and methodology.
“And then finally, in terms of ongoing guidance with respect to reserve releases over the medium-term, I expect the reserve releases to remain within the normal guidance that we provide, which is on the order of 9% to 15% of opening net reserves. That remains a suitable sort of modelling assumption,” said Hussain.