Swiss Re Insurance-Linked Fund Management

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Hiscox ILS business continues to drive growth, assets surpass $1.35bn


The insurance-linked securities (ILS) and collateralized reinsurance fund management business at re/insurance group Hiscox continues to drive growth in the firms reinsurance segment, with ILS assets under management at Hiscox Re & ILS now exceeding $1.35 billion.

Hiscox has seen slow and steady growth in third-party capital levels managed in the ILS funds managed in its Hiscox Re & ILS division, with the ILS and collateralized reinsurance business becoming the primary driver of growth across its reinsurance lines.

The re/insurer continues to utilise ILS capacity in combination with its rated paper and leverage in order to offer a differentiated ILS product, with funds featuring numerous positions and often broader diversification than some other ILS strategies.

“Growth is coming from our ILS business,” the company explained in its interim results which were reported this morning, with assets under management in ILS funds and vehicles now having surpassed $1.35 billion, up from $1.3 billion at the end of the first-quarter and $1.25 billion at the start of the year.

This slow and steady growth has enabled the ILS business at Hiscox to become an increasingly integral piece of the firms reinsurance strategy, particularly in the soft and challenging market environment seen today.

Bronek Masojada, Chief Executive Officer, Hiscox Ltd, commented this morning; “We are managing the cycle and driving retail growth, as our long-held strategy of balancing the portfolio between volatile big-ticket business and steady retail business continues to deliver. Despite tough market conditions we are finding opportunities.”

Discipline remains key, but equally as important to Hiscox today is innovation and the ILS activities at the company are an example where Hiscox can demonstrate this. This is particularly important when some of the key markets Hiscox operates in are significantly pressured today.

Robert Childs, Chairman of Hiscox, explained; “Conditions in the London Market continue to test our mettle. We have trimmed back in some of the most affected areas – making difficult but necessary decisions to reduce our involvement or withdraw completely from some lines of business. In Hiscox Re and ILS, we are benefitting from strong underwriting heritage and product innovation.”

The reinsurance price environment continues to present significant challenges and Hiscox shrinks its lines in areas it feels pricing has declined too far.

Childs continued; “The rating environment for big ticket business has not improved but we remain agile, shrinking where rates have reduced and pursuing growth where margins have held up better. In our retail lines, rates are broadly stable.

“In the London Market, rates are drifting down and stabilizing at a marginal level. As announced earlier in the year, we have exited political risks and materially reduced in other areas including aviation, extended warranty and big- ticket property.

“In Hiscox Re and ILS, pressure on North American reinsurance rates was still evident during the important 1 June and 1 July renewal seasons but the rate of decline is slowing.”

Low levels of loss continue to benefit Hiscox’s results, like so many other re/insurers, and the company disclosed that it had a minimal loss from the Grenfell Tower fire in London and Cyclone Debbie during the second quarter, with other losses at a normalised level across the group.

“The weather has been good to us, and like others in the industry we have benefited from a benign catastrophe claims environment,” Childs reported in his statement today.

In the reinsurance segment, Hiscox Re & ILS, growth was seen thanks in part to the ILS strategy continued expansion.

Hiscox reported an increase in gross written premiums of 11.2% to £405.4 million, up from £364.7 million in the prior year, which is 4.3% growth if foreign exchange factors are disregarded.

“This is the result of successful product innovation in Hiscox Re and on-going growth in the Hiscox ILS funds,” Childs said.

“In Hiscox Re, a combination of disciplined underwriting, growth in key client partnerships and new opportunities to write well-rated business in areas such as Japan, US flood and cyber is paying off,” Childs continued.

Some of these new opportunities will also have benefitted the ILS strategies, which looks to diversifying regions such as Japan to deploy some of its capacity.

Childs commented on the ILS strategy growth; “Assets under management in ILS funds and vehicles are now in excess of US$ 1.35 billion with continued demand from investors. The fully collateralized fund that launched at the start of the year has already fully deployed its assets under management.”

Looking ahead, alongside challenges Hiscox faces such as Brexit, the company foresees the need to continue to manage the soft cycle.

“Our strategy was designed for this climate; managing the insurance cycle and driving retail growth. Finding attractive bigger-ticket business remains challenging, and there is no indication that will change anytime soon, but we are not afraid to make tough decisions where necessary,” Childs explained.

On the ILS unit specifically, Childs sees plenty of room for growth, saying that the selective approach to new opportunities is expected to continue to yield new chances to deploy capital through the Hiscox Re & ILS division.

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