Hiscox has reported that its profit before tax increased substantially in 2018 to $137.4 million despite the impacts of catastrophes on its reinsurance and insurance-linked securities (ILS) business, driven mainly by the improved performance of its London Market operations.
Overall, Hiscox saw its profit increase three-fold to more than $137 million with a combined ratio of 94.9%. Gross premiums written (GPW) jumped 15% in 2018 to $3.8 billion, while its investment return fell to $42.5 million, year-on-year.
For the first time in three years, Hiscox London Market retuned to both growth and profit in 2018 in response to disciplined cycle management.
The unit recorded GPW of $877.7 million, which is growth of more than 17% on 2017, with much of the expansion coming from property, general liability, and cyber. Hiscox London Market’s profit reached $78.2 million in 2018 with a combined ratio of 89.3%, compared with a loss of $46.7 million and a combined ratio of 111.6% in 2017.
Since the end of 2016, the unit has walked away from $400 million challenged business, and, by the end of last year, the segment had replaced this business with stronger performing operations.
Hiscox Chief Executive Officer (CEO), Bronek Masojada, commented: “We have generated strong growth and good profits in a busy year for claims. The tough action we took in our London Market business is paying off, and we are seeing some positive momentum in big-ticket lines, where rates, terms and conditions are improving.
“We are growing well in our chosen retail segments, and our small market shares mean the size of the opportunity in retail remains immense. We will continue to invest in our people, infrastructure and brand and maintain our focus on disciplined growth.”
Somewhat offsetting the improved London Market segment result, Hiscox Re & ILS, the firm’s reinsurance and third-party capital focused arm, fell to a net loss of $23.2 million in 2018 as a result of natural catastrophes and large claims. The unit’s combined ratio hit 116.9% in 2018, compared with 101.3% a year earlier.
The company notes a still challenging reinsurance market, underlined by muted rate rises at the January 1st 2019 renewals in spite of consecutive large loss years.
Hiscox Chairman, Robert Childs, commented on the reinsurance market landscape: “We are ruled by the market, particularly in big-ticket and reinsurance lines, and adjust our appetite according to the opportunities it provides. Rates did not respond as much as we feel they should have following the losses arising from hurricanes Harvey, Irma and Maria in 2017, but where they did we were able to take advantage.
“A second successive year of historic market losses seems to have done little to spur a widespread market turn, but once again we have been ready, taking opportunities where they have been available.
“Although the reinsurance market did not harden as many had hoped, the retrocession market – reinsurance of reinsurers – did become more sensibly priced. This has in the past led to sufficient increases all the way through to insurance pricing. It remains to be seen whether that particular tail still wags the dog.
“Progress can feel painstaking, but we are gaining ground on improved rates, and on the technical, but important, area of terms and conditions. As our London Market result shows, we are happy to navigate these waters and our underwriters are up to the task.”
Hiscox Retail, which comprises Hiscox UK & Europe and Hiscox International, which is the single biggest segment in the Group, generated more than half (55%) of the company’s GPW in 2018, at $2.1 billion. The unit produced a profit of $136 million in 2018 and a combined ratio of 93.6%.
“The improvement in combined ratio on the larger premium base was insufficient to offset lower investment returns, leading to lower profits from the division. The rating environment across retail also remained broadly flat throughout 2018,” said Hiscox.
Masojada added: “Our ambition for 2019 is to continue to grow premiums, albeit at a slightly slower pace than 2018. We expect that improving pricing as a result of Lloyd’s Decile 10 and our ongoing portfolio optimisation will lead to more insurance profit, with higher interest rates driving better investment returns. We will continue to invest in our underlying infrastructure and our brand. All of this will help propel our business forward.”
