Global re/insurer Hiscox has fallen to a loss of $107.4 million in the first half of 2022, as a negative investment result more than offset an improved underwriting performance in the period.
The loss for H1 2022 compares with profit of $133.4 million a year earlier, with Hiscox highlighting a strong underwriting result in a complex environment.
In fact, across the group, the underwriting result improved from a gain of $99.8 million in H1 2021 to $123.2 million in H1 2022, with Hiscox reporting a 2 percentage point improvement in the group combined ratio to 91.3%.
Hiscox notes that the combination of premium growth and portfolio adjustments led to its strong underwriting performance, which is actually its best result since 2018.
In terms of premiums, the firm has reported that gross premiums written (GPW) spiked by more than 9% to approximately $2.7 billion in H1 2022, with rate momentum continuing to keep pace with or exceed inflation expectations in all three divisions.
Starting with the Hiscox Re & ILS unit, the company notes excellent growth underpinned by insurance-linked securities (ILS) inflows and an improving market environment.
Within Hiscox Re & ILS in H1 2022, GPW increased by a significant 37.1% to $822.7 million. ILS net inflows reached $561 million and assets under management hit $1.9 billion as at July 1st, 2022.
The segment has produced a combined ratio of 80.2% for H1 2022 compared with 76.7% for H1 2021. Hiscox explains that its underwriting result includes a net loss of $48 million, net of reinsurance, from all risks in Ukraine and Russia, including aviation. Of this, $34 million is attributable to Hiscox London Market. The main impact from the war in Ukraine is through the political violence, war and terror book.
When it comes to natural catastrophes, however, Hiscox highlights a relatively benign second quarter, which ensured that the net nat cat losses in H1 2022 are within the company’s budget.
During the first half of 2022, Hiscox Re & ILS achieved a 13% rate increase, which the firm attributes to capacity constraints in retrocession, North American catastrophe and cyber, and greater demand from clients. All of this equates to a cumulative rate increase of 52% since 2017, says Hiscox.
In Hiscox London Market, the firm has reported that deliberate reductions in “under-priced” nat cat exposure led to a 3% decline in GPW to $591.9 million, with growth continuing in “attractive business classes, such as casualty, marine, energy and flood.”
The majority of the ultimate net loss related to the ongoing war in Ukraine was absorbed by Hiscox London Market, contributing around 10 percentage points to the combined ratio, which weakened from 81.7% in H1 2021 to 86.1% in H1 2022.
In the opening six months of 2022, Hiscox London Market achieved an 8% rate increase, which equates to a 72% cumulative rate increase since 2017. The firm explains that the cyber market remains hard, with rates up 60% so far this year.
In Hiscox Retail, the firm says that growth momentum is building with GPW growth of 1.5%, year-on-year, to more than $1.2 billion on the back of solid growth in Europe and an improved performance in the UK. Within this part of the business, Hiscox says that rates are strengthening across all regions.
But while the underwriting performance across the group was impressive in the first half of 2022, the sharp rise in interest rates, widening of credit spreads and equity markets selling off, saw the investment result produce a loss of $214.1 million in the period, compared with a gain of $61.9 million a year earlier. Hiscox explains that debt and fixed income losses are mostly unrealised and non-economic in nature.
Aki Hussain, Group Chief Executive Officer (CEO) of Hiscox, commented: “I am pleased with the Group’s performance during the first half of the year as rate strengthening and disciplined growth drove much-improved underwriting profitability. Whilst macro-economic and geo-political concerns are affecting the global economic outlook, our strategy and diverse portfolio of businesses continues to create opportunity, and we are well positioned to generate high quality growth and earnings. Our big-ticket businesses have experienced positive market conditions and our well-balanced portfolio is generating attractive returns. In Retail, ongoing investment in technology and brand is driving growth in 2022 and is expected to accelerate in 2023.”
“In these uncertain times we have seen a significant increase in interest rates, which has had a material impact on our pre-tax profits mostly due to mark-to-market falls in our bond portfolio; these are largely non-economic in nature, and the impact on capital is broadly offset by a discounting benefit on reserves. Moreover, the rise in reinvestment yields is indicative of a significant uplift in future expectations of investment income,” he added.