Hiscox ILS adds $190m of inflows, as reinsurance returns to profit

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Hiscox Group, the specialist insurance or reinsurance underwriter and ILS capital manager, has successfully raised new insurance-linked security (ILS) capital inflows of $190 million, which it expects will drive higher fee income through the rest of this year.

hiscox-re-ils-logoAfter the new inflows, assets under management at Hiscox ILS, the insurance-linked securities (ILS) and collateralised reinsurance underwriting unit, have risen back to US $1.5 billion, as of the middle of 2021.

The news came as Hiscox reported its results and a return to profit for the reinsurance and insurance-linked securities (ILS) unit Hiscox Re & ILS, which delivered profit of $38.1 million for the half-year, despite a $33 million impact of Winter Storm Uri in Q1.

That’s much better than 2020’s $15 million loss that had been reported for the previous period.

Hiscox Re & ILS premiums written rose by almost 40%, as the company sought to take advantage of market conditions and rising reinsurance pricing.

Outgoing CEO Bronek Masojada, commented on the results, “This is a good result driven by strong performances across all our businesses. Our investments in digital trading continues to bear fruit and market conditions are the best we have experienced for many years. Hiscox has the fire-power, new leadership and talent to capture the many opportunities ahead.”

Chairman of Hiscox Robert Childs commented on the rate environment, saying, “In Hiscox London Market and Hiscox Re & ILS, we have seen multiple years of rate improvements as the market worked its way out of a prolonged soft market; the evidence of these rate increases combined with disciplined underwriting actions can be seen in the attractive combined ratios and profits reported at half year. As markets have improved, we have judiciously deployed more capital enabling those businesses to grow their net premiums written at a faster rate than gross premiums written. These growing net premiums will of course emerge as earned premiums over the next twenty-four months providing additional earnings power to the Hiscox P&L. ”

However, Childs also noted that rates have begun to taper in the reinsurance division, although this hasn’t stopped Hiscox deploying more capital into attractive areas of the marketplace in 2021.

“Rate improvement has also continued in Hiscox Re & ILS, albeit at a slower pace, with an average increase of 9% across the portfolio and a cumulative rate increase of 36% since 2017. The business benefitted from double-digit increases in risk, marine, retro and North American property at the important January renewals.

“April reinsurance renewals focused on Japan delivered mid-to-high single-digit rate rises, while June’s Florida renewals achieved a 10% average rate increase, in line with our expectations. Rate momentum is expected to moderate over the rest of the year, although Winter Storm Uri and the inflated cost of construction materials are likely to provide further support to pricing,” Childs explained.

Interestingly, Hiscox has deployed more capital into the property catastrophe reinsurance marketplace in recent months, as one area of the market it has seen attractive in terms of pricing allowed the company to expand.

Childs explained that this was not just with third-party capital either, saying, “Net premiums written grew by 39.7% as we took a more meaningful catastrophe bet with Hiscox’s own capital to take advantage of the best rating environment seen in years. This will build earnings power into 2022.”

Overall, Hiscox Re & ILS saw 9% rate increases, with single digit increases secured for earthquake exposures and double digit on typhoon in Japan at the April renewal, while Florida saw 10% rate increases at June 1st, despite competition from new entrants.

At the same time, Hiscox Re & ILS has moved further up the risk tower, with Childs saying that in Florida it “significantly reduced our exposure to lower layers in light of increased attritional losses in the state.”

Like so much of the market, Hiscox has also shifted its focus away from aggregate reinsurance covers in North America, seeking to limit its exposure to attritional catastrophe losses to improve its portfolio quality.

One factor that may have a positive read across for its ILS investors as well, is the fact Hiscox said this morning that despite booking $33 million of the Group’s net loss of $47 million from Winter Storm Uri in reinsurance and ILS, this has been “more than offset by significant favourable prior-year movements, mainly in our Japan book.”

Hiscox ILS assets have returned to $1.5 billion, a level they were at a year ago. However, last year less of the ILS capital was deployable it seems, as trapped capital will have reduced over time, and the fresh inflows raised will help Hiscox ILS’ firepower at the renewals going forwards.

Childs stated that, “We have received gross inflows of $190 million, which will provide additional fee income in the second half of 2021.”

Hiscox ILS stands better placed for the rest of this year and into the January 2022 renewals as a result and now having a new managing principal incoming to the unit, will be hoping to capitalise on this and raise additional ILS capital towards year-end.

On the recent appointment of Vincent Prabis as Managing Principal, Hiscox ILS, Childs commented, “Vincent will be responsible for spearheading the Company’s ILS evolution, ensuring investor demands for high-quality, innovative and diversified solutions are met. The business will benefit from his deep expertise and passion for delivering superior service to sophisticated institutional ILS investors.”

One point worth noting going forwards is Hiscox’s potential exposure to the recent severe flooding in Europe, on which Childs stated, “Given the high-net-worth nature of the private customers we cover in these regions, we expect an elevated level of individual claims coming through in the third quarter.”

So that is something to look out for at the next reporting season.

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