Hiscox ILS assets hold at $1.9bn, Re & ILS premiums up 49% at renewals

Hiscox Group reported this morning that its insurance-linked securities (ILS) assets under management of the Hiscox ILS unit are stable at $1.9 billion as of the end of 2022, despite some outflows experienced in the second-half of the year.

Positively, this stable pool of third-party capital assets has helped the Hiscox Re & ILS division deploy more underwriting firepower at the key January renewals for 2023, with net premiums written up 49% year-on-year, the company said.

Hiscox Group, had reported significant ILS capital fund-raising success through the second-quarter of 2022, with $561 million of inflows ($511m of net flows) lifting its ILS assets under management to $1.9 billion.

Net flows to the ILS funds were seen as broadly stable in the third-quarter of 2022, while in the fourth-quarter flows again seem to have been stable, as Hiscox reported $79 million of outflows in the second-half but still the $1.9 billion of Hiscox ILS assets under management at year-end.

Which puts the group’s ILS assets up 36% year-on-year, from the $1.4 billion reported at the end of 2021.

Group CEO Aki Hussain reported on 2022, “Hiscox Re & ILS gross premiums written increased by 28.5% to $1,037.9 million (2021: $807.8 million) crossing the $1 billion milestone for the first time, as we benefitted from further hardening market conditions. Much of the growth was supported by ILS inflows in the first half of the year, while broadly maintaining our net written premium position. Excluding reinstatement premiums, gross premiums written grew 34.4%.

“The business delivered a particularly strong performance in retrocession and North American and international property catastrophe lines, underpinned by increased demand and continued pressure on the supply of capacity in both the traditional and ILS space.”

Commenting on the market conditions for ILS capital raising and reinsurance, Hussain added that, “Despite the positive inflows of AUM in 2022, there is uncertainty within the market regarding the availability of new or replacement ILS capital in the near term, as a result of multiple years of significant loss events, latterly combined with economic volatility in the form of rapidly rising rates and decade-high inflation.

“In part, it is this uncertainty that drove improved rates and tightening of terms and conditions during the January 2023 renewals.

“It is into the resulting highly attractive market that Hiscox is deploying its own organically generated capital to fill the gap in the market that has been left by a combination of third-party capital contraction and retrenchment by some reinsurers.”

Despite losses from hurricane Ian, the Hiscox Re & ILS division delivered a 81.6% combined ratio for 2022 and continued to reduce its risk excess exposure, as well as reducing its participations on aggregate excess of loss deals catastrophe.

These actions are set to continue in 2023, as Hiscox looks to boost profitability and reduce exposure to secondary perils.

Hiscox has significantly grown its reinsurance book at the 1/1 2023 renewals, deploying more organic capital and making use of its Hiscox ILS assets under management.

Commenting on reinsurance market conditions, CEO Hussain said, “The reinsurance marketplace is undergoing a seismic shift, with 2022 rates above the 2012 level, and we anticipate material improvement across nearly all lines for 2023.

“Hurricane Ian served as a catalyst, among other factors, following many years of losses across the sector, leading to significant improvement in the rating environment.

“Capacity continued to reduce during 2022 both in the traditional arena and the ILS space, as a result of another year of industry losses and volatility in the investment markets. This is leading to a true hard market for catastrophe-exposed risks.

“We are witnessing the best market conditions in over a decade and have deployed additional capital at January renewals, achieving risk-adjusted rate increases of 45% in property and 26% in specialty.”

Hiscox deployed more of its own group capital to the Hiscox Re & ILS opportunity for the January 2023 renewals, seeing “a highly attractive market” opportunity.

Looking ahead, Hussain commented, “The reinsurance market conditions are the best we have seen in over a decade. Hiscox is a net beneficiary of reinsurance rate hardening. The scale and breadth of our business, as well as the long-standing relationships developed with our reinsurance panel, have been an essential part of ensuring we secured the required retrocession protection to support our 2023 business plan.

 “Hiscox Re & ILS has the expertise, strong balance sheet and financial flexibility to capitalise on the current trading conditions. As a result of deploying our organic capital at 1 January 2023 renewals, our net premiums written in January 2023 were up 49% year-on-year. In 2023, net premium written growth is expected to exceed gross premium written growth.”

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