Hiscox Re ILS hits $1.5bn, to expand product range to primary risks

by Artemis on February 26, 2018

Hiscox Re Insurance Linked Strategies Ltd. (Hiscox Re ILS), the manager of third-party reinsurance capital funds at Hiscox, has grown its assets under management to a new high at $1.5 billion after attracting additional capital following the losses of 2017 and now plans to expand its product range too.

Hiscox Re ILS’ assets under management had reached $1.35 billion as of July 2017, but then the major hurricanes and other disaster losses in the second-half of the year will have caused some losses to reinsurance contracts the manager allocates to, likely eroding some of its capacity.

But the ILS manager raised fresh capital, with Hiscox citing that Hiscox Re ILS was, “Able to attract additional qualified investors and entered 2018 with $1.5 billion of assets under management.”

In reporting the insurance and reinsurance group’s results this morning, Hiscox said that its reinsurance and ILS division was profitable, despite the challenges from hurricanes, California wildfires and other loss events.

Hiscox Re & ILS was profitable, in a costly year for reinsurers, due to good underwriting on behalf of Hiscox and third-party capital providers,” the company explained.

Bronek Masojada, Chief Executive of Hiscox Ltd, explained, “Our long-held strategy of balance has served us well this year. The strong growth and profits in retail countered the volatility felt in our big-ticket businesses which were impacted by an historic year for natural catatrophes. We have made significant investments in infrastructure and brand both of which will continue.”

Hiscox had been pulling back in certain areas of its book, due to declining rates and less profitability in the underwriting business, but the company may be changing direction following the 2017 catastrophe losses.

CEO Masojada said that, “Market pricing has improved and as a consequence we have growth ambitions for every part of our business.”

Hiscox Chairman Robert Childs reiterated this in his statement this morning, saying, “Following the catastrophes in the third quarter, we adjusted course and reworked our business plans to grow as prices rose. On the whole we have achieved good price rises in property, casualty and catastrophe-exposed lines, particularly in loss-affected areas, and it is my opinion that this momentum will continue through 2018.

Masojada also commented on the January renewals, “Catastrophe reinsurance pricing into the key 1 January renewal season saw average prices increase by 9%. There were clear variations within this, with loss-affected accounts seeing larger increases.

“The increases were less than we had expected and our aggregate book will grow less than initially planned. It is clear though that rate decreases are few and far between, so we think that 2018 will offer a better risk/reward trade-off than 2017.”

2017 was not an easy year though, gross premiums underwritten at Hiscox Re & ILS were up 4.5% to $700.2 million, but net of cessions to supporting capital partners, premiums dropped somewhere to $243.6 million, from $306.2 million in 2016.

The unit reported a $25.5 million profit for the year, down from $155.9 million in 2016, with a 101.3% combined ratio much higher than 2016’s 53.0% due to the major catastrophe losses.

The company called this, “A good result in the face of challenging trading conditions,” adding that Hiscox saw benefits from non-catastrophe underwriting, which helped to offset some of the losses, as well as from “fees on our management of third-party funds and some releases from catastrophes in prior years.”

Importantly, ILS fee income is still earned even in major catastrophe years, however profit shares will have been eroded due to the catastrophe losses.

The Hiscox Re & ILS unit grew in U.S. catastrophe reinsurance during the year, offsetting declines in other areas including retrocession where rates were seen as particularly poor.

The team’s gross underwriting performance was exceptional and as a result we were able to retain our quota share support from insurers and syndicates, and to replace those whose appetite changed,” the CEO wrote in his report.

Commenting specifically on the ILS business, Masojada said, “Hiscox Re ILS, our manager of capital market funds which invest in insurance, had a good year. We were able to attract additional qualified investors and entered 2018 with $1.5 billion of assets under management.

With further growth achieved by the Hiscox Re ILS business, despite the impact of last year’s losses, thoughts now turn to how to support further rounds of growth and increased assets under management.

Across the Hiscox Re & ILS business, the intention is to find further growth in non-catastrophe exposed lines of business, with areas such as casualty and cyber risks seen as key for 2018, the company said.

But in the ILS business specifically, Hiscox sees an opportunity to bring third-party capital to risks of a more primary nature, according to Masojada.

The ILS team will also be working with their insurance colleagues to see how we can utilise our access to both capital market investors and primary insurance to create new products and opportunities,” the Chief Executive explained.

This could help Hiscox to offer more comprehensive property insurance products, with the primary business working alongside the ILS team to ensure catastrophe exposures are fully covered, for example.

 The Hiscox platform presents plenty of opportunities for the ILS unit to grow further, as evidenced by its launch of a flood insurance product with alternative capitasl backing last year.

These types of initiatives can help the Hiscox group as a whole to offer new or better underwriting products, while the ILS unit can bring new sources of risk linked returns to its investor base.

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