Hiscox Re & ILS expects January reinsurance rate hardening

Hiscox Re & ILS, the international reinsurance and insurance-linked securities (ILS) arm of the Hiscox Group, is expecting an improved rate environment at the key January 2022 renewal seasons, which could lead to further net growth as it takes advantage of the best rates in years in some areas of its business.

Hiscox Re & ILS expects that the elevated catastrophe losses experienced during the third-quarter of 2021 will be sufficiently impactful for the industry to drive more reinsurance rate hardening at 1/1 2022.

On those specific catastrophe loss events, Hiscox said it has reserved $110 million against hurricane Ida, based on an industry loss estimate of $35 billion, as well as another $40 million for the European floods, based on an industry loss of $9 billion.

The hurricane Ida industry estimate is aligned with industry consensus right now, but the European flood estimate seems a little below where the majority of the industry sees that event, at closer to $12 billion.

The company said, “European floods in July and Hurricane Ida’s landfall in August are once again a useful reminder of loss costs borne by property catastrophe reinsurers. Hiscox Re & ILS will continue to be disciplined in the market to ensure business is rated to make a sustainable profit.”

The company believes that hurricane Ida is the sixth most costly US hurricane on-record and broke down its reserves for the event as $52 million net in London Market, $50 million net in Hiscox Re & ILS, and $8 million net in Retail insurance.

$20 million of the European flood loss is expected to fall to the Hiscox Re & ILS division, which is largely from its retrocessional reinsurance book, which the company called “a modest impact in line with our underweight exposure to Europe.”

Hiscox Re & ILS reported gross premium growth of 5.6% in the quarter, but net premium growth was up 47%, reflecting the retention of more higher rate business written during the period.

The company said, “We retained more risk on the balance sheet to take advantage of the favourable rating environment and reassessed our mix of quota share and excess of loss reinsurance.”

“Portfolio rate increases and good growth in our North America property book partially off-set underwriting action taken in specialty lines of wildfire and a reduction in retrocession opportunity,” the company further explained.

Despite the major catastrophe losses experienced, Hiscox Re & ILS reported a “robust result” for Q3, as non-property catastrophe experience and prior year reserve development remained favourable, the company said.

Through the third-quarter, Hiscox Re & ILS experienced rate increases that rose 8% on average, even though it had expected that rates may have moderated “due to the abundance of capital and continued interest in the sector.”

That bodes well for the upcoming renewals, given the continued catastrophe loss activity and the fact capital has been depleted in some areas of the marketplace.

Now, with its 2021 reinsurance account largely written, Hiscox said that attention for Re & ILS turns to the upcoming January renewals, where “we expect a necessary further rate hardening as the market responds to its fifth year of elevated natural catastrophe losses.”

Commenting on the trading announcement this morning, Bronek Masojada, Group Chief Executive Officer, said, “Hiscox London Market and Re & ILS are performing strongly and we continue to benefit from excellent growth in our Retail digital business. Our capital position is robust. As I make my last quarterly trading statement as CEO of Hiscox it is pleasing to see the business in such good shape.”