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Hiscox ILS assets slip to $1.8bn on first-quarter outflows


In reporting its results this morning, Hiscox Group disclosed that its Hiscox ILS business experienced $148.4 million in net outflows of capital during the first-quarter of 2023, which the company said was “consistent with our expectations of a general trend in the sector.”

Hiscox ILS logoThe insurance-linked securities (ILS) assets under management of the Hiscox ILS unit had held stable at $1.9 billion, when last reported as of the end of 2022.

But Hiscox Group CEO Aki Hussain had commented at that time that, “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.”

The first-quarter of the year is often a time of ILS asset flows, as annual commitments can come to an end and it seems this is likely what has affected Hiscox ILS’ assets under management.

Investors in ILS strategies need to give notice of any redemptions they want to make and these can often end up flowing at the end of a year, or middle of the year, with the outflows booked in the next quarter.

Hiscox Group said that the net outflows reflected “reduced appetite from third party capital providers across the sector.”

Also pointing out that, “The combination of scarcity of new capital coming into the ILS market and continuing uncertainty around when it will return in any meaningful way has contributed to an ongoing positive  rating environment.”

The outflows resulted in a dip in overall ILS assets under management for the Hiscox ILS division, to $1.8 billion as of March 31st 2023.

But the company remains committed to its ILS business and is actively seeking new investor relationships, it said.

“The ILS asset class and other similar vehicles will remain a continuing feature of our market,” Hiscox explained.

Adding, “We are actively engaging with potential investors to ensure that when their capacity does return, we are well placed to support this renewed demand.”

It’s perhaps also worth noting that the Hiscox ILS strategy is not a catastrophe bond focused one, which is where new assets are mainly being seen in ILS so far this year.

As market conditions continue to improve and ILS strategies focused on collateralised reinsurance, such as Hiscox’s, have a chance to deliver some performance and demonstrate improvements made to portfolios, terms and conditions, we expect interest to recover and flows to become positive again for many managers, Hiscox ILS included.

On the Hiscox Re & ILS unit, where reinsurance and ILS business is underwritten, Hiscox explained that the “market-wide subdued ILS capital appetite” affected its net to gross written premiums balance.

“Hiscox Re & ILS achieved excellent growth with net insurance contract written premiums up 37.6%, as we deployed additional organically generated capital to take advantage of the market hardened materially in the lead up to the January 2023 renewal season,” the company said.

But also noted that, “Insurance contract written premiums grew 5.0% to $418.1 million (2022: $398.2 million), lower than net growth, mainly due to the market-wide subdued ILS capital appetite, as we saw net outflows of $148.4 million in the quarter.”

Aki Hussain, Chief Executive Officer, Hiscox Ltd, commented, “We are seeing positive momentum across the Group. For our Retail businesses, growth momentum in the UK and US is accelerating in line with expectations, and Europe continues to deliver strong double digit increases. Hiscox London Market and Hiscox Re & ILS continue to thrive in very favourable market conditions, growing top line and materially increasing net retained premium, as we deploy our own capital to make the most of the opportunity. This combined with a much improved investment result, means the outlook for the half year is positive.”

Finally, Hiscox Re & ILS also experienced an average risk-adjusted rate increase of 41% in the first quarter of the year, with cumulative risk-adjusted rate increases of 116% since 2017.

View details of dedicated ILS fund managers and reinsurers offering ILS-style investment opportunities in our Insurance-Linked Securities Investment Managers & Funds Directory.

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