Kiskadee passes $540m, as ILS helps Hiscox grow reinsurance

Assets under management for the Kiskadee ILS funds, operated by Hiscox Group’s third-party reinsurance capital and insurance-linked securities unit Kiskadee Investment Managers, have passed $540m as the ILS unit helped to drive growth in reinsurance.

Hiscox has seen significant success in insurance-linked securities (ILS) and collateralized reinsurance, since the launch of its Kiskadee unit, hitting $400m in ILS assets under management at the start of 2015 and targeting $500m by the middle of the year.

The unit has hit its target, with Hiscox reporting that ILS assets under management at Kiskadee have grown to over $540m by the 1st July.

The activities at Kiskadee have helped Hiscox to maintain growth in its reinsurance division Hiscox Re, as the firm puts efficient ILS capital to work alongside its own balance-sheet. This has helped the reinsurance unit to maintain and even grow its premiums written, despite what Hiscox acknowledges is an increasingly challenging marketplace.

“Gross written premiums for Hiscox Re increased by 6.0%, as we successfully developed business for our third party ILS partners in our Kiskadee funds,” Hiscox Chairman Robert Childs wrote in the firm’s second-quarter results statement this morning.

No meaningful catastrophe losses hit the reinsurance unit in Q2 either, helping it to a combined ratio of just 45.5%.

Childs continued; “Hiscox Re continues to benefit from the lack of major catastrophes, and had minimal exposure to Cyclone Marcia and the severe weather that hit Texas in April and May.”

However, it’s clear that reinsurance business is less profitable than in prior years, due to the softening experienced in pricing over recent renewals. Hiscox Re, despite reporting an increase in premiums written, reported profits before tax of £59.6m, which is down from £75.6m in the same period of 2014.

The Kiskadee ILS unit and its funds are a bright spot, enabling additional capacity to be put to work alongside the Hiscox balance-sheet in reinsurance business. The increase in premiums written by Kiskadee has been acting as an offset for reductions seen elsewhere in the reinsurance business.

Childs said; “As of 1 July our Kiskadee family of insurance linked funds has attracted over $540 million in capital, up from $400 million anticipated at 1 January 2015, and during this period Kiskadee wrote gross written premiums of $87 million.”

Hiscox recognises that results are currently being buoyed by the lack of major catastrophe losses across the insurance and reinsurance industry, something Childs called a market “defying gravity.”

“Strong results across the industry mask what we regard as a market that is defying gravity, as pension funds and others pour capital in, fuelling further competition in big-ticket insurance and reinsurance. Rating levels are being gnawed away, yet attritional losses remain constant, and thus underlying loss ratios are creeping up. The market’s profitability is being propped up by a lack of meaningful catastrophe losses,” he wrote.

Hiscox continues to balance its big-ticket and reinsurance business with profitable retail and high net worth business. Kiskadee too is a foil for the challenges in reinsurance, enabling the firm’s reinsurance underwriting division to reduce its cost-of-capital.

Hiscox saw rate declines across reinsurance lines at the mid-year renewals, but the retrocession market where capacity was more constrained saw some brighter pricing indications as the pricing floor became more apparent.

“Trading conditions in reinsurance remain tough, though there are signs that rates are now finding their floor. Rates for US property catastrophe business were down on average by 10% at the 1 June and 1 July renewals. International property catastrophe business was down by 10% at the July renewals. In our retrocession book we saw increases of between 5% and 20% on mid-year renewals, as demand outstripped supply. Other non-catastrophe exposed lines of business saw more modest reductions,” Childs continued.

Hiscox has also taken advantage of merger and acquisition activity to add new hires, particularly in the London market where line of business expertise is everything.

On the outlook Childs wrote that Hiscox expects the challenging conditions will continue; “We expect the current tough conditions to continue for our big-ticket insurance and reinsurance businesses into 2016.”

“The importance of balancing our desire to grow in these areas with managing our exposure (particularly when prices are close to walk-away levels) remains crucial,” he continued. “Our teams in Bermuda and the London Market have shown good discipline, dexterity and creativity thus far and I believe have the energy and strong relationships to succeed in the future.”

The Kiskadee ILS unit will likely continue to grow its assets under management as we approach the next major renewals in January 2016, which should give the unit another chance to grow. With Hiscox as its parent, Kiskadee perhaps has better access to business than many ILS units of comparable age, which should help it to build scale more rapidly, as market conditions allow.

Also read:

– Kiskadee ILS funds grow to 300+ positions, add 70 at April renewal.

– Hiscox benefits from Kiskadee ILS premium income offset.