Swiss Re Insurance-Linked Fund Management

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Hiscox: Expect further deterioration of soft re/insurance market


In its results announced this morning, insurance, reinsurance and third-party capital management group Hiscox Chairman Robert Childs, said that the firm expects the softening in the insurance and reinsurance market will deteriorate further.

The expectation that the reinsurance pricing trend will continue to worsen is becoming a wildly held view in the market. Childs explained that this trend is also hitting some larger insurance lines of business, saying; “We expect the current soft market to deteriorate further, particularly for larger insurance lines and catastrophe reinsurance.”

While the reinsurance market continues to soften Hiscox has been pulling back on some lines of business, which was evident in the results it announced this morning. However insurance-linked securities (ILS) and managing reinsurance capital for third-party investors remains a focus, with the firm still seeking investors for its Kiskadee Investment Management platform.

Hiscox Re, the Bermuda and worldwide reinsurance division of the firm, reported premium income as being down by 21.6% (13% in local currencies) as the pressure on rates continued and the firm essentially earned less income per unit of risk underwritten it appears.

Despite this Hiscox Re actually grew its profits by 15.2% despite the markets challenges. Childs explained; “Careful risk selection meant we avoided some of the larger losses in the market and were helped by the absence of any major global catastrophes. However, Hiscox Re does have a small exposure to the February snowstorms in Japan.”

Hiscox is seeking to innovate its way through the soft market it seems, from Childs statements, looking to bring new products to market and work with partners to obtain the best underwriting opportunities with the right capital.

Childs continued; “Our established relationships are serving us well. The team is using their extensive market knowledge to develop new products and these are being well received in the market. Hiscox has a strong track record of underwriting on behalf of others and we continue to enjoy good support from our quota share business partners who like our underwriting expertise and our focus on profit over volume. As a business we have the flexibility to respond to market changes; underwriting in the conventional way, using quota share arrangements or via the Insurance Linked Securities (ILS) market.”

Childs said that the insurance-linked securities strategy continues to develop, under the Kiskadee branding, but with further work to do; “We are seeking new investors in these funds, and are working on a number of potentially bespoke portfolios on behalf of third parties.”

Bronek Masojada, Chief Executive Officer, Hiscox Ltd, commented on the quarter; “It has been a great start – at constant exchange rates the Group made a similar profit to last year. Falling rates and deteriorating terms and conditions are putting pressure on the market. We‟ve seen this before, but our discipline and strategy of balance is designed to absorb these conditions. We will seize opportunities as they present themselves in our specialty lines and maintain our discipline in the face of increasingly strong headwinds.”

Hiscox’s results show how it is fighting back against the soft market, with the Kiskadee ILS and third-party capital management platform clearly a key component. The lower premiums but higher profit is, perhaps, a sign that Hiscox is controlling expenses well, although largely due to low catastrophe losses in the quarter we believe.

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