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Hiscox buys $100m of industry loss warranty (ILW) protection


Hiscox Group, the Bermuda headquartered re/insurer, has acquired additional retrocessional reinsurance protection against peak catastrophe risks with a $100 million slug of industry loss warranty (ILW) based protection secured in advance of the all-important hurricane season.

Hiscox logoHiscox, as we reported earlier today, is taking a range of capital actions to ensure its business is better protected at a time of significant pressure from the Covid-19 pandemic.

Among these actions is a capital raise, which has seen Hiscox raising UK £375 million in a successful issuance of shares this morning.

But as well as having more capital available to take advantage of an expected firming of rates across global reinsurance and U.S. wholesale risks, Hiscox is also making sure its existing portfolio is well-hedged when it comes to hurricane risks as well.

As a result, the company said this morning that it has purchased $100 million of additional catastrophe reinsurance protection.

The company gave further details, explaining that Hiscox has been buying industry-loss warranty (ILW) protection as a way to hedge its peak catastrophe exposure.

On the $100 million of catastrophe reinsurance purchased the company said, “Hiscox maintains a comprehensive and high quality reinsurance programme purchased from a diverse range of reinsurers to protect its underwriting portfolio.

“Hiscox is supplementing this programme with the purchase of Industry Loss Warranties to protect the natural catastrophe book ahead of the US wind season.”

Hiscox also said it is exploring loss portfolio transfers (LPT) as another way to release capital against legacy business from its “big ticket back book”.

With the re/insurer aiming to be ready to capitalise on opportunities in the wholesale insurance and reinsurance markets, it is essential to have protection for the existing portfolio and hedges in place to allow for growth, perhaps in key markets such as Florida if conditions are conducive and rates rise sufficiently.

Hiscox said that are more catastrophe reinsurance purchases in progress as well, suggesting that the company could enter the U.S. wind season with a much better level of hedging against U.S. hurricane exposures.

Based on the latest forecasts for the 2020 U.S. hurricane season, which all point to an above average level of activity this year, Hiscox’s moves to better hedge its portfolio may prove warranted should any storms head for the shoreline.

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