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Investments help Hiscox to profit, London Market, Hiscox Re & ILS challenged

29th July 2019 - Author: Luke Gallin

Global insurer and reinsurer Hiscox has reported that its H1 2019 profit before tax increased slightly to $168 million, despite the firm’s group combined ratio weakening to 98.8% as loss deterioration from prior year events hit its London Market and Hiscox Re & ILS segments.

Hiscox logoAt $168 million, Hiscox’s profit increased by just more than $5 million from the first-half of 2018. The firm states that its solid profit was driven by a good investment return of 4.8% annualised, which is a significant improvement on the 0.7% recorded a year earlier.

While profit increased, the re/insurer’s group combined ratio weakened from 87.9% to 98.8%, driven by a higher volume of claims year-on-year and the strengthening of reserves for prior-year claims from typhoon Jebi, hurricane Michael and the firm’s risk excess book of business, in response to rising industry loss estimates.

Hiscox announced earlier this month that it expected a hit of $40 million in H1 2019 as a result of the above-mentioned reserve strengthening, driven by significant and continued deterioration from 2018 cat events. In 2018, the company benefited from prior year reserve releases from hurricanes Harvey, Irma, and Maria, which amounted to $25 million, however the firm did not experience the same benefit in H1 2019.

Hiscox notes that its reserve releases for H1 2019 totalled $26 million, compared with $154 million a year earlier, so a fairly substantial dip.

Overall, gross premiums written increased to $2.4 billion and net premiums written jumped to $1.3 billion, compared with $2.2 billion and $1.2 billion a year earlier, respectively.

The firm’s Chief Executive Officer (CEO), Bronek Masojada, commented: “Hiscox delivered a profit of $168 million for the first half despite a more challenging claims experience. Looking ahead, with six consecutive quarters of rate growth in some Lloyd’s business, the market is in a better position than it has been for some time. In Retail, we will continue to invest in our infrastructure and marketing to drive sustainable growth. Our strategy of diversification gives us options.”

Both Hiscox London Market and Hiscox Re & ILS experienced weakening in the combined ratio in the first-half of 2019, although both segments did expand in the period as positive rate momentum continues.

Hiscox London Market recorded gross premiums written of $484.6 million, up from $458.7 million in H1 2018. However, profit before tax declined to $34.4 million and the unit recorded a combined ratio of 103.3%, compared with 88.6% a year earlier.

“Rate improvements driven by the Lloyd’s Decile 10 directive, of which we have been great supporters, and recent market losses, has led to good growth in many of our core lines including D&O, cargo, marine hull, major property and household. We continue to lead consortia for general liability, flood and product recall which gives us additional scale and prominence in the market,” explained Robert Childs, Chairman of Hiscox.

The Hiscox London Market segment was impacted by loss creep from hurricane Michael, which is underpinned by assignments of benefits abuse which has challenged the Florida marketplace, despite the recent legislation.

Hiscox Re & ILS, which comprises the firm’s reinsurance and insurance-linked securities (ILS) operations, saw its gross premiums written increase by 6.5% in the period to $698.3 million. However, profit before tax fell from $57.8 million in H1 2018 to $14 million, and the combined ratio weakened significantly from 71.5% to 111.3%.

“Like others in the market, we have seen some deterioration in claims resulting from Typhoon Jebi, the most powerful typhoon to hit Japan, as severe winds impacted an area of high-value construction ahead of the upcoming Olympic Games and Rugby World Cup. This has caused an unusually large number of claims and increased repair costs due to demand surge,” said Childs.

Hiscox notes that in its reinsurance and ILS unit it is seeing some positive rate momentum, especially in loss-affected lines that were hit by two years of cat losses. However, the insurer and reinsurer states that this is being dampened by a still abundant supply of capacity from both traditional and alternative sources.

“We have responded rationally, growing in wildfire liability where we have seen rate increases of up to 200%, and managing wildfire-exposed property business where rates in some cases have not responded in line with our view of the risk,” added Childs.

While its London Market and Reinsurance & ILS segments experienced a challenging period in light of elevated loss activity and continued creep, Hiscox Retail saw its profit climb year-on-year from $100 million to $137.7 million. Gross premiums written increased slightly to $1.15 billion, while the combined ratio also weakened here, from 90.7% to 95%.

As noted by Hiscox, the firm’s stronger investment return of $147.5 million in H1 2019, compared with just $19.8 million in H1 2018, assisted the increase in Group profit in spite of challenging market conditions.

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