The Hiscox Re ILS funds grew their assets under management again in the third-quarter of 2018, a period when parent Hiscox continued to find opportunities for premium growth, although at a slower rate than the start of the year.
However, the company said in reporting its results this morning that it expect that the market will recognise the material loss creep from the 2017 hurricane events as well as recent catastrophe loss activity, at the January renewals and beyond into 2019, suggesting rate stability at least and an ongoing chance to expand its underwriting portfolios.
Hiscox Re Insurance Linked Strategies Ltd. (Hiscox Re ILS), the manager of third-party reinsurance investment funds at re/insurer Hiscox, has continued to grow, reaching $1.7 billion of ILS assets under management in its investment funds by the end of Q3 2018 (up from $1.6bn a quarter earlier).
Helping the firm to grow its third-party reinsurance capital has been the opportunities to underwrite more risk at improved rates in 2018, as Hiscox continued to expand its book, albeit at a slower pace.
For the first nine months of 2018 Hiscox has now expanded its underwriting book by an impressive 14.3% to $3.043 billion, up from $2.663 billion in the prior year.
The Hiscox Re & ILS division, where Hiscox underwrites its reinsurance business on its own balance-sheet and for its third-party investor funds, saw its gross written premiums expand by 10% in constant currency to $782.4 million over the year to-date.
However, Hiscox said that this growth rate has slowed since the half year, as the “strong rate improvement experienced at the beginning of the year has begun to recede.”
Commenting on the year-to-date Bronek Masojada, Chief Executive Officer, said, “We have had strong growth, but as the market remains challenging, we will remain disciplined, and I expect our growth to moderate over the balance of the year. It has been an active third quarter for claims across the Group, both from large losses and catastrophes, and I am pleased with how we have responded.”
Hiscox said it has reserved $125 million for a range of catastrophe loss events, including hurricane Michael’s impacts on the fourth-quarter. The firm also experienced a large marine loss during the quarter, which cost it $13 million, which could be the Lurssen shipyard fire loss.
So far this year Hiscox’s growth has been driven by where it found rates to be better, hence in reinsurance most of the growth has been seen in property catastrophe reinsurance lines, which will also have aided in the growth of the ILS funds.
Largely the growth will have been in the U.S. as well, which aligns with the focus of most ILS fund strategies. Hiscox said that “rates in US catastrophe-exposed business are up mid-single-digits, while rates in the international book are down slightly.”
But looking ahead Hiscox believes that the market will have to recognise the influence of prior loss activity, both from 2017 and the ongoing loss creep related to U.S. hurricane catastrophes, as well as the current year loss activity that has hit the market and is still being assessed.
“Looking ahead to January and further into 2019 renewals, we expect the market to recognise material adverse development from the hurricanes of 2017 and the recent events in the US and Japan,” the company explained.
That suggests at least rate stability for areas affected by losses, as well as rate increases on a case by case basis.
This potentially stable at least rate environment could provide further chances for premium growth at the renewals, which should also translate to fresh opportunities to raise more investor capital for the Hiscox ILS funds.
In some areas Hiscox has seen some really significant rate increases, including 10% across its risk excess book and 50% in its wildfire book. The firm will be hoping to see some comparable rate development in specific areas of the market at 1/1 renewals and beyond.
Interestingly, Hiscox said it is beginning to see the effects of Lloyd’s push to improve performance in the market, with an expectation that the improvements will continue, and the firm is seeing positive movements in rates and also signs of a re-balancing of influence with brokers.
However its own syndicate capacity for 2019 will be $200 million lower than the prior year and the firm said, “We remain disciplined in the face of market conditions that, while better than previous years, have not improved sufficiently to warrant additional capacity for growth. We expect to maintain the level of premiums written into the Syndicate year-on-year.”
Commenting on reinsurance market activity, Hiscox said, “Property catastrophe reinsurance has delivered the bulk of the growth, and our risk excess and specialty portfolio, where we see the best risk-adjusted returns, has also grown well. Our specialty book, which includes cyber, wildfire and financial lines business, is a key area of focus and we have secured positive rate improvement for ourselves and our third-party capital partners.”
Hiscox’s strategy of providing its ILS fund investors with broad access to transactions across many lines of its short-tail book means the ILS fund returns should be benefitting from some of the rate improvements secured.
However, Hiscox noted that typhoon Jebi has hit its reinsurance business, saying, “we have taken losses from Typhoon Jebi, as primary insurers exhausted their deductibles.”
Hiscox also said it had “comparatively moderate exposure to Hurricane Florence,” and its reinsurance business was exposed to a number of market losses, including in marine.
This does suggest some potential attrition will flow into the Hiscox ILS funds from some of these events, although it is unlikely to be particularly significant given the fund strategy is to take many smaller positions, rather than having large exposures to single reinsurance programs.