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Hiscox reports 93.1% combined ratio as reinsurance returns to profit in H1

3rd August 2021 - Author: Luke Gallin

Insurer and reinsurer Hiscox has announced a turnaround of its financial performance for the first half of 2021, as the carrier’s pre-tax profit reached $133.4 million, compared with a loss of almost $140 million for the same period last year.

Hiscox logoAt the halfway stage of last year, Hiscox reported reserves related to the COVID-19 pandemic of $232 million across the group, as each of its units announced combined ratios of above 100% for the period.

For full-year 2020, Hiscox’s net COVID-19 claims reached $475 million, which the firm has said this morning remains unchanged, while its pandemic-related claims estimate for 2021 is lower than expected at $17 million.

Year-on-year, all units have reported an improved performance in H1 2021, helping the company produce a pre-tax profit of $133.4 million. Excluding COVID-19 net claims and loss portfolio transfer costs, and Hiscox would have seen its H1 2021 pre-tax profit hit $176.4 million.

Back in June, it was revealed that Enstar had reinsured a diversified portfolio of legacy insurance underwritten by Hiscox Syndicate 3624, which resulted in a P&L charge of $26 million for Hiscox in H1 2021.

Across the group, gross premiums written (GPW) increased by 8.5% to over $2.4 billion in H1 2021, which Hiscox attributes to good growth and positive rate momentum in all three divisions.

Overall, the group combined ratio strengthened from 114.6% in H1 2020 to 93.1% in H1 2021.

“After a challenging 2020, when many of our customers were severely affected by Covid-19 restrictions resulting in large losses for Hiscox and the wider insurance industry, it is pleasing to see positive results in each of our three divisions,” said Chairman, Robert Childs.

In Hiscox Re & ILS, which comprises its reinsurance businesses in London and Bermuda and ILS activities, GPW increased by almost 9%, year-on-year, to $599.9 million. At the same time, net premiums written (NPW) jumped by nearly 40% as Hiscox “took a more meaningful catastrophe bet with Hiscox’s own capital to take advantage of the best rating environment seen in years.”

During the period, Hiscox Re & ILS has reserved $33 million of the group’s net loss of $47 million related to Winter Storm Uri in the U.S., which the firm says was more than offset by significant favourable prior-year movements, mainly in its Japan book of business.

At the April reinsurance renewals in Japan, Hiscox says that it managed to secure rates in line with expectations. In July, the company achieved a “satisfactory” rate increase in Florida of 10%, despite elevated competition from new market players.

Overall, Hiscox Re & ILS achieved an average rate increase of 9%.

Within its insurance-linked securities (ILS) operations, assets under management now stand at $1.5 billion, with the unit receiving gross inflows of $190 million, which is expected to provide some additional fee income in H2 2021.

In the first half of 2021, Hiscox Re & ILS has recorded a pre-tax profit of $38.1 million and a combined ratio of 76.7%, compared with a net loss of $15 million and a combined ratio of 123.6% for the same period last year.

Apart from the impacts of Winter Storm Uri, which mostly hit Hiscox Re & ILS, the group has noted no significant natural catastrophes or large man-made losses in H1 2021.

However, the firm does expect “an elevated level of individual claims coming through in the third quarter”, as a result of the severe flooding in parts of Europe in July.

Within Hiscox Retail, top line increased by 7.9% in H1 2021 as the carrier reports GPW of $1.2 billion. The segment has reported pre-tax profit of $31.7 million for the period and a combined ratio of 100.7%, compared with a net loss of $82.2 million and a combined ratio of 117.1% for the prior year period.

Excluding the impacts of COVID-19 and loss portfolio transfer costs, and the Hiscox Retail segment would have produced a combined ratio of 96.7% for H1 2021, against 96.1% a year earlier.

Hiscox London Market, which leverages the global licences, distribution network and credit rating of Lloyd’s to insure clients around the world, has reported GPW of $609.9 million for H1 2021, compared with $555.9 million a year earlier.

Within this part of the business, Hiscox says that the impact of underwriting actions taken over the past few years are now coming to fruition, with the segment reporting pre-tax profit of $87.3 million and a combined ratio of 81.7% for H1 2021, compared with $16.3 million and 105.2%, respectively, in H1 2020.

“The first half of the year has been relatively benign from a claims perspective, with the net claims incurred year to date excluding Covid-19 impact being 14.7% below the prior year and with limited large losses in the period. The property classes which had been driving losses in the prior years are now largely remediated, with further course correction actions undertaken this year. This has resulted in a material improvement in the loss performance of the overall portfolio,” explains the firm.

On the asset side of the balance sheet, Hiscox has reported an investment return of $61.9 million for H1 2021, compared with $84.6 million for prior year period. As at June 30th, 2021, assets under management totalled $7.4 billion, which is a decline from the $7.6 billion as at the end of December 2020.

Bronek Masojada, Chief Executive Officer (CEO), commented: “This is a good result driven by strong performances across all our businesses. Our investments in digital trading continues to bear fruit and market conditions are the best we have experienced for many years. Hiscox has the fire-power, new leadership and talent to capture the many opportunities ahead.”

Childs added: “I am optimistic about the outlook for the rest of the year. We have turned a corner, our business performance is on track and the course correction actions will continue to earn through. While the recent extreme weather events, such as flash floods in Europe and wild fires in North America, are a stark reminder that climate change is driving increasing weather volatility, our business is strongly capitalised with financial flexibility as we enter the annual hurricane season.

“Finally, I would like to thank our employees, business partners and shareholders for their continued support.”

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