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Hiscox uncertain if mid-year rate increases will be adequate

7th May 2019 - Author: Luke Gallin

Global insurer and reinsurer Hiscox saw its gross written premiums increase by 0.6% in the first-quarter of 2019, as a decline in the reinsurance & insurance-linked securities (ILS) segment offset growth in the retail and London market segments. At the same time, the re/insurer is unconvinced mid-year rate increases will be sufficient to cover the cost of risk.

Hiscox logoOverall, gross written premiums (GWP) totalled $1.16 billion in the first-quarter of 2019.

GWP growth of 3.2% to $593.3 million in Hiscox Retail and 4% growth to $228.6 million in Hiscox London Market contributed positively to the result. However, a 5.6% GWP reduction in Hiscox Re & ILS to $342.8 million, adversely impacted the overall performance in the period.

Hiscox states that the main driver of its reduced GWP in Hiscox Re & ILS is a reduction in the availability of capital that is able to be deployed by the ILS funds, in light of the high level of cat losses suffered over the past two years.

Stripping out the impact of ILS, and premiums in this segment grew by 3% for Hiscox in the first-quarter of 2019.

The insurer and reinsurer notes that an abundant supply of both traditional and alternative reinsurance capital continues to put downward pressure on rates, adding that it is optimistic that sustainable rate increases will continue through 2019, driven by a market-wide recognition of the need for an updated view of risk.

Hiscox also states that it continues to optimise its portfolio in light of recent catastrophe events, taking action to increase rates and reduce its exposure in some areas.

In Hiscox Re & ILS, rate improvements were incremental, and overall, rates are up by roughly 2% says Hiscox. The highest rate increases are in retrocession and risk excess accounts, explains the firm.

In U.S. cat-exposed business, rates are up low-single digits and Hiscox states that pressure remains in the international portfolio with rates being slightly down, in aggregate, and despite a reduction of over 25% on loss-affected Japanese business at the recent April renewals.

In Hiscox London Market, rates increased across the portfolio by roughly 4%, driven by improvements at Lloyd’s and the cumulative impact of two years of catastrophe losses. And in the firm’s retail business, rates are broadly flat while in cyber and terrorism lines, rates continue to be under pressure with Hiscox taking a cautious tone.

Despite the expectation of rate increases at the upcoming mid-year renewals, when the loss-affected U.S. business is up for renewal, Hiscox remains uncertain if the increases “will adequately reflect the cost of risk.”

Hiscox Chief Executive Officer (CEO), Bronek Masojada, commented: “We have done what we said we would do in the first quarter. In retail we continue to pull back in US private company D&O, where conditions are challenging, and the UK business is adapting to a new IT system which will help us capture the long-term opportunity. We expect growth for our retail businesses to trend towards the mid-point of our 5-15% target range in the second half.

“In the London Market and in reinsurance, where conditions are improving, we are growing in the right areas and maintaining our focus on writing profitable business.”

The firm’s reinsurance & ILS segment also experienced some deterioration on Typhoon Jebi and the risk excess book. In light of this, its aggregate reserve development, while remaining positive, is expected to be at the lower end of the normal range.

Hiscox recorded an investment return of $84.2 million in the first-quarter of 2019, compared with an investment loss of $13.5 million a year earlier as financial markets rebounded in the first three months of the year.

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