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Rate improvements help Hiscox to grow top line

2nd November 2020 - Author: Matt Sheehan

Specialist re/insurer Hiscox has reported a 2% increase in gross written premiums over the first nine months of 2020, helped by strong rate improvements across both its primary and reinsurance business.

hiscox-logoGWP stood at $3,262.4 million for 9M 2020, compared with $3,212.6 million for the same period last year.

This included 7% growth for the Hiscox London Market division, which has enjoyed aggregate rate increases of 18% for the year to date, with continued acceleration across the third quarter.

The firm noted pricing increases in almost every line, most notably in US public company D&O, US general liability, cargo, hull and major property.

And it added that the improving rate environment within Lloyd’s continues to be driven by factors impacting both supply and demand, as carriers’ discipline increases and clients’ appetite for retaining risk shrinks in the face of ongoing economic uncertainty.

Hiscox Re & ILS, however, reported a 7% decrease in 9M GWP despite seeing a portfolio-wide rate increase of 12% following the mid-year renewals, including 20% in retrocession.

The firm explained that its reinsurance top line has been impacted by underwriting discipline and portfolio action in recent months, including its exit from casualty reinsurance and lower deployment of third-party capital earlier in the year.

“While still not a universally hard market, rate improvement continues to be driven by capital contraction and discipline encouraged by an ultra-low interest rate environment, which is expected to continue at the January renewals and beyond,” Hiscox stated.

In Hiscox Retail, GWP grew 4% over the nine-month period, as rates were up 7% in our US excess and surplus lines, with terms and conditions tightening across the board. In the UK and Europe, pricing remained stable.

Hiscox did not provide an update on its earnings or revenues for Q3, but did reveal that it had reserved $75 million for catastrophe losses in the quarter and is not expecting any change to its estimated COVID losses.

And despite a high frequency of natural catastrophe events during Q3, the overall claims experience for Hiscox London Market was in line with expectations, the company said.

Setting aside the impact of the pandemic, claims for Hiscox Re & ILS and Hiscox Retail were also normal, although Hiscox Europe took some large fine art and cyber losses in September, and Hiscox USA similarly experienced some adverse claims trends on larger-ticket standalone general liability and on ransomware incidents in cyber.

Hiscox’s estimate for claims related to COVID-19 still stands at $387 million, net of reinsurance, including $232 million reserved in the first half, of which $150 million was for event cancellation.

The figure also includes $130 million for business interruption claims across all divisions, with the majority coming from Hiscox UK, and $25 million for further event cancellation losses before year-end.

If restrictions continue into 2021, Hiscox has an additional $30 million to $40 million potential exposure relating to event cancellation.

Hiscox remains exposed to further business interruption claims stemming from both local and national restrictions in the UK this year, but said that any losses would continue to benefit from reinsurance cover.

Additionally, the insurer is continuing its discussions with the FCA and customer action groups to appeal the Supreme Court decision that recently ruled in favour of policyholders on the issue of business interruption claims.

On the investment side, Hiscox’s return for the first nine months of 2020 $130 million, down from $186 million for the same period last year.

As economic lockdowns eased globally during the third quarter, economies and markets began to recover,” said Hiscox. “However, the recovery slowed as the impact of policy stimulus faded and infection rates moved higher around the world towards the quarter-end.”

“While uncertainty remains around the economic impact of policy responses to the on-going pandemic, the US election and the end of the Brexit transition period, so far the pullback has been moderate, with markets largely looking through the immediate issues.”

Overall, Hiscox’s investment return is now ahead of its original forecast for 2020, but conditions have significantly reduced its forward-looking yield and it anticipates more modest returns over 2021.

“I am proud of the way Hiscox employees have continued to support our customers in very challenging circumstances,” said Hiscox CEO Bronek Masojada. “Our year-to-date performance demonstrates the resilience of the Group, as we delivered good growth in every target area, including in all of our Retail businesses,” he noted.

“We are benefiting from the inexorable shift towards digital in our Retail businesses thanks to our on-going investment in technology, as well as the strongest pricing we have seen in the London Market and in reinsurance for more than five years. We have the financial strength, operational resilience and underwriting expertise to take advantage of these favourable market trends.”

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