ILS income from larger Kiskadee helps Hiscox results

by Artemis on July 25, 2016

The contribution made by its insurance-linked securities (ILS) business helped insurance and reinsurance group Hiscox to a good result, with the additional scale of the Kiskadee Investment Managers business increasingly adding income to the company.

Around the mid-year reinsurance renewals Kiskadee Investment Managers, Hiscox’s insurance-linked securities (ILS) fund and reinsurance linked investment strategies unit, hit the target it had set itself, of reaching $1 billion of ILS assets under management.

As the unit has grown the contribution it can make to Hiscox’s results has increased and once again the firm highlights Kiskadee in its interim results which were published this morning.

Hiscox has reported a strong quarter, with high profit and return on equity driven by favourable foreign exchange conditions, a good result from its retail and U.S. operations, as well as “strong performance” from its reinsurance business Hiscox Re which is where Kiskadee and the ILS operations sit.

Bronek Masojada, Hiscox CEO, commented on the interim result; “Our retail businesses continue to grow in strength and profitability. Hiscox London Market and Hiscox Re have been disciplined in tough markets. Brexit has caused volatility and Sterling weakness, resulting in a foreign exchange gain which has benefited the bottom line. As this good result illustrates, our strategy, our people and our brand can deliver opportunities.”

The firm noted that the London market is the most competitive right now, saying; “Conditions are most challenging in the London Market. Aviation, energy and big ticket property business has experienced rate pressure for some time and that contagion is now spreading to other lines.”

Hiscox also noted continued rate pressure across most markets, adding that it continues to shrink where it deems pricing unsatisfactory. Retail casualty, specialty lines, London market business, and U.S. property insurance business is all notes as competitive and softening.

But reinsurance is perhaps a bit of a bright spot for Hiscox, with the pressure easing as it is the area of the market that saw the steepest and fastest price declines and rates appear to be finding a floor.

“Hiscox Re has reported rate reductions for some years but there are signs of this slowing at the important 1 June and 1 July renewals,” explained Hiscox Chairman Robert Childs.

The firm explained that its reinsurance business saw a good result, with the contribution from Kiskadee important; “Hiscox Re delivered another strong performance, due to good risk selection, new products and income from our ILS business.”

Reinsurance premiums written are up at Hiscox by almost 21%, with one of the contributing factors being “business written under Kiskadee” according to Childs. However market conditions and a slightly higher combined ratio means profit was a little lower than 2015.

Childs also notes the improving rate conditions in reinsurance, saying; “Hiscox Re experienced less aggressive rate reductions at the important 1 June and 1 July renewals, and benefited from opportunities to write well-rated business at the June Florida renewals as well as growth in our key client partnerships.”

Kiskadee’s milestone, of reaching $1 billion of ILS assets under management, is also noted by Childs. The added scale will be helping Hiscox Re to better navigate the challenging environment, while Kiskadee investors benefit from the access to business that the Hiscox franchise provides.

No major losses are expected in the reinsurance unit, with £5.4 million of impact from the Canada wildfires, the Jubilee oil field claim, earthquakes in Japan and Ecuador and the Houston flooding. Another £7m has been reserved for other large losses affecting the Hiscox Re book.

The ILS business is repeatedly cited as a contributor to profitability and growth at Hiscox and the rapid expansion of Kiskadee’s assets under management will have made that contribution increasingly meaningful.

The Kiskadee team will have further opportunities to increase assets as the second half of the year progresses and the all important January renewals approach, with Hiscox’s strong franchise and reach able to supply the business needed to deploy any new capital raised.

Also read:

Hiscox’s Kiskadee reaches $1bn ILS assets target ahead of plan.

Hiscox Re underwrites 37% more premiums for Kiskadee in Q1 2016.

Hiscox expects $1bn+ of ILS assets for Kiskadee in 2016.

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