Hiscox Re & ILS premiums up, but rates to hinder capital deployment in 2020

Insurance and reinsurance firm Hiscox Group has announced an increase in gross written premiums within its reinsurance and ILS unit during 2019, but has warned that it’s unlikely to use of all its available capital in 2020 as rate increases remain below targets for the firm.

The re/insurer announced in November of last year that it had expanded its reinsurance and ILS book by 6.1% on a constant currency basis, to $823.6 million. Now, in its full year 2019 results announcement, the firm has reported growth of 7.4% on a constant currency basis to $866.5 million.

During 2019, the Hiscox Re & ILS segment was hit by another year of heavy catastrophe claims, which pushed the unit to a net loss of $93.8 million with a combined ratio of 163.9%.

The company announced previously that it had reserved $165 million for the impacts of Typhoons Hagibis and Faxai in Japan and also the impact of Hurricane Dorian, and, combined with the Chile riots and the Australian wildfires, contributed to a poor result for the segment in 2019.

In addition, Hiscox notes that the impacts of Faxai, Hagibis and Dorian reduced fees and profit commission by $25 million in 2019.

However, the re/insurer did still increase the size of its reinsurance and ILS portfolio in the year by 7.4% as rate increases in loss-affected property lines of business and retro were offset by deliberate reductions in risk and excess, and also Hiscox’s departure from the casualty reinsurance arena.

Hiscox notes that its ILS business continues to see interest from both new and existing clients, with assets under management (AuM) of $1.5 billion. The re/insurer notes that despite a challenging year, both of its flagship Kiskadee funds ended the year with a positive return.

Despite the continued interest in its ILS offering, which includes the launch of the Kiskadee Latitude Fund in 2019 that provides access to the returns of its reinsurance and primary business, Hiscox expects that its ILS AuM will decline in 2020 as a result of one investor deciding to lower their participation in the space.

The company adds that regarding its new fund, which launched with $100 million of capital, it’s been pleased with the performance so far. Furthermore, Hiscox launched another new fund for the January 1^st, 2020 renewals, which offers investors in the space a higher risk/reward profile to complement its existing lower risk strategies.

“The vision for Hiscox Re & ILS is ‘one team, unlocking capital and pioneering risk’ and the goal is to bring together our capabilities from underwriting through to analytics, research and claims, in order to profit in changing markets,” said Hiscox.

Adding, “We continue to believe engaging with multiple capital sources will allow us to write a broader range of products, more of them, and at better margins.”

Competition remains intense across the reinsurance space and while rate momentum has continued, many in the marketplace have expressed a need for additional improvements for certain lines of business.

In light of this, Hiscox does not expect that it will put to work all of the capital available in 2020, citing a lack of desirable returns despite rate increases.

“We therefore expect top line growth to remain subdued as we pursue a disciplined path,” explained the firm in its full year 2019 results announcement.