Hiscox reports reduced deployable ILS capital, keeps powder dry for cat risks

Hiscox Group, the specialist insurance or reinsurance underwriter and ILS capital manager, has reported a shrinkage in its deployable insurance-linked securities (ILS) capital and a reduction in its appetite for catastrophe risks, as it keeps its powder dry for future opportunities.

The company said it is remaining disciplined in its Hiscox Re & ILS unit, which is where the company underwrites reinsurance and its Hiscox ILS unit manages its third-party investor capital.

So far Hiscox said, in reporting its results this morning, that it is “keeping its powder dry” in Hiscox Re & ILS, “as conditions begin to improve, with rates up 11% and expected to improve further.”

Overall, Hiscox reported that gross premiums underwritten by its Hiscox Re & ILS division fell by 21% in the first-half, dropping from almost $700 million in 2019 to just $552.3 million for H1 2020.

This is the result of a “reduced catastrophe bet in response to rate inadequacy” Hiscox explained, as well also as having “less deployable capital from third-party capital providers.”

The company explained that, “In US property catastrophe and excess of loss business, our underwriters in London and Bermuda held their nerve, remaining disciplined and reducing exposure materially. At the April renewals in Japan, the international team secured strong rate increases in line with our new view of typhoon risk after two active years for Japanese windstorm losses.

“The mid-year renewals, where we achieved strong rate increases in Florida of 29%, provided the latest data point for a forthcoming hard market in reinsurance. A chain reaction of capital contraction has created stress in the primary and retro markets, which sees the market finely poised for a turn.”

On ILS assets under management, Hiscox explained that this remains flat at $1.5 billion.

However, in terms of ILS assets deployable, Hiscox disclosed that only around $1 billion of that is actually deployable currently, as some collateral remains trapped and held as reserves for prior year loss events.

The company also reiterated that it is facing a redemption from a third-party investor later this year, which is expected to further reduce its ILS capital that is available for the January 2021 renewal cycle.

However, “we are well capitalised and able to retain more attractively priced risk on our own balance sheet,” Hiscox explained.

The Hiscox Re & ILS segment fell to a loss of $15 million for the first-half of the year thanks to a combined ratio of 123.6%.

The main driver of this underwriting loss is an increase in Hiscox’s overall loss provisions for the Covid-19 pandemic, which it now puts at $232 million across the group, while catastrophe loss activity was said to be more normal.