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Hiscox reports 2% growth in Q1, expects COVID-19 to drive rate hardening

6th May 2020 - Author: Luke Gallin

Specialist insurer and reinsurer Hiscox has reported gross written premium (GWP) growth of 2% to $1.18 billion for the first-quarter of 2020, driven by solid growth in the firm’s Retail and London Market units, somewhat offset by a planned decline in Hiscox Re & ILS.

Hiscox logoBroken down, and the re/insurer has reported that Hiscox Retail GWP increased by 8% year-on-year to $635 million, while Hiscox London Market saw its GWP jump by 12% to $254.5 million in Q1 2020.

The company attributes the growth in Hiscox Retail to US and Europe, and notes that Hiscox London Market continued to benefit from rate momentum. Year-to-date, Hiscox London Market has reported an aggregate rate increase of 12% across the portfolio, with rates up in 15 of 16 lines.

In addition, Hiscox says that it expects rates to continue to harden as a result of a capital contraction being driven by uncertainties related to the COVID-19 pandemic.

Premium growth in Retail and London Market operations were somewhat offset by a 15% decline in GWP within Hiscox Re & ILS, which the firm says was planned amid a promise to pullback in light of rate inadequacy.

Reflecting the disappointing rate environment, the re/insurer notes that within US property catastrophe and excess of loss business, teams in both Bermuda and London remained disciplined and reduced exposure materially.

During the April renewals, Hiscox Re & ILS secured rate increases of 38% for windstorm and 20% on a combined perils basis.

“Looking ahead, our expectation is for further capital contraction in the market to push up rates and drive improved terms and conditions at the June and July renewals, and we remain committed to writing business only at the right price,” says the firm.

Overall, Hiscox notes that pricing in reinsurance remains below expectations, although the company is starting to see rate improvement accelerate. Year-to-date, rates are up 8%, and while further improvements are expected at the mid-year renewals, the firm says that Hiscox Re & ILS will remain cautious and growth for the rest of the year will depend largely on pricing adequacy.

Bronek Masojada, Chief Executive Officer (CEO) of Hiscox, commented: “In the first quarter, Hiscox has seen continued growth in our Retail and London Market divisions. Hiscox Re & ILS remained cautious.

“The business responded rapidly to the changing circumstances caused by the global Coronavirus pandemic, and almost all of our employees around the world are working from home. We have redeployed staff to frontline roles where possible.

“We are paying claims for event cancellation and abandonment, media and entertainment and travel which are covered by our policies and in the UK we welcome the positive steps by the FCA to resolve disputes in the industry over the application of property policies relating to business interruption.

“We are announcing an equity placing today in order to respond to growth opportunities and rate improvement in the US wholesale and reinsurance markets. We have managed our investments prudently and our capital position is robust, with an estimated group regulatory solvency ratio at the end of March of 195%.”

The company’s stance on COVID-19 and potential losses remains the same as its announcement towards the end of April. Should disruption caused by restrictions on travel and mass gatherings continue for a six month period from March, Hiscox expects to pay up to $150 million in net claims.

However, should these coronavirus-related restrictions extend beyond six months, Hiscox expects that these claims could increase by an additional $25 million.

Turning to investments, and the insurer and reinsurer has reported an investment loss of $79 million for Q1 2020, against a gain of $84.2 million in the prior year quarter. The firm attributes this to the impact of mark-to-market losses on bonds and a reduction in equities, driven by COVID-19-induced economic uncertainty and subsequent recessionary risks.

In addition, Hiscox’s Q1 2020 trading statement also discusses its recently announced capital raise, designed to position the company to be able to take advantage of future growth opportunities and rate improvement in the US wholesale and reinsurance markets.

Furthermore, the re/insurer has also withdrawn all financial guidance for 2020, citing the uncertainty being caused by the ongoing COVID-19 coronavirus pandemic.

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