Hiscox grows reinsurance & ILS book, but says capacity holding back rates

Insurance and reinsurance company Hiscox Group has expanded its reinsurance and insurance-linked securities (ILS) portfolio at its Hiscox Re & ILS unit so far in 2019, but still believes that the weight of capacity in the market is preventing more widespread price increases from occurring.

Echoing its sentiment from earlier this year, Hiscox said that it believes, “Widespread rate improvement is still hampered by the fluidity of reinsurance capacity available from traditional and alternative sources.”

But even so, the company has managed to expand its reinsurance and ILS portfolio, with gross premiums written increasing by 6.1% on a constant currency basis to $823.6 million across this segment of its business, while Group wide premiums rose by 7.3% to over $3.2 billion.

Our sister publication Reinsurance News went into more detail on Hiscox’s wider group results earlier this morning.

Hiscox has seen the best opportunities for expansion in areas where loss activity has been highest, with rates rising the most in retrocession and California wildfire liability, both of which the company has seen opportunistic growth in.

At the same time the company has seen stronger rate improvements in London and at Lloyd’s, where Hiscox forecasts additional price firming across the market into 2020.

The firms reinsurance and ILS businesses are expected to take the brunt of claims from the Japanese typhoon activity that has occurred so far this year, with Hiscox estimating typhoon Faxai as a $10 billion industry loss event and more recent typhoon Hagibis as a $15 billion event, the same as RenRe recently said.

In addition, Hiscox expects hurricane Dorian to be an $8 billion industry event, although more impactful for its London market book than reinsurance and ILS.

The company has reserved $165 million for the three catastrophes, which will take it “materially” over its catastrophe budget for the second-half of the year.

In addition, Hiscox expects that these catastrophe losses will dent profit commissions and fees by around $25 million for the year.

Hiscox Re & ILS has seen rates up approximately 6% across the portfolio so far in 2019, although largely contained in areas of the business where losses had been felt.

Retro is seen as an opportunity and the company said, “Reduced capacity continues to drive material rate hardening and we are being opportunistic.”

In its London Market business, Hiscox is putting third-party capital to work increasingly using its Hiscox Latitude ILS fund, that it launched earlier this year.

Hiscox said that, in London, “the ability to underwrite on behalf of third-party capital providers – including through the Latitude ILS fund which was launched earlier in the year – provides scale and prominence with brokers and customers.”

With 2020 looking like being a third consecutive year for rate firming in London, Hiscox may find more ILS growth opportunities coming from that marketplace as third-party capital increasingly helps it grow its book.

Overall though, Hiscox continues to find many areas of reinsurance and ILS less attractive, the company said, highlighting that, within Hiscox Re & ILS, in many areas, “rate is currently insufficient to warrant increased participation.”

“In this environment, it pays to be disciplined and nimble. Hiscox Re & ILS will grow cautiously where opportunities present and contract where the rewards do not match the risk,” the company explained in today’s trading statement.

As a result of this and also due to the continued influence of significant catastrophe losses suffered over the last two years, Hiscox’s insurance-linked securities (ILS) assets under management remain at over $1.5 billion, a slight dip, but in reality with there having been little in the way of change here since mid-2018.

At a guess, the Hiscox ILS team will be watching closely for signs of improving market conditions as the year-end renewals approach, in case there are chances to raise fresh capital to deploy more into improving areas of the market.

While at the same time, primary insurance may provide a brighter spot for the ILS unit as it increasingly uses its Latitude fund on London market business to offer a diverse range of ILS investment opportunities to its investor base.