Hiscox sees sustained ILS demand, launches new primary focused ILS fund

Hiscox said that it has continued to see sustained demand for its Hiscox Re ILS funds, despite the impacts of major losses over the last year and the firm has launched a new ILS strategy in January with a focus on accessing primary insurance returns.

Hiscox said this morning that its Hiscox Re ILS funds assets under management now stand at just over $1.5 billion, which is slightly down on the $1.6 billion high it reached as of July 2018.

The reason for the slight dip will have been the impact of losses through the second-half of 2018, as well perhaps as some loss creep effects.

But despite this, Hiscox said that investor demand continues for its strategies, leading it to launch a new one for 2019.

Hiscox has launched the Kiskadee Latitude fund, a new ILS fund that provides access to the returns of insurance lines of business.

It’s the first time Hiscox has offered such a strategy, having focused on reinsurance linked investment funds in the past.

The Kiskadee Latitude fund is backed by a top-tier investor, the company said. The strategy will enable the investor to access a more diverse insurance and reinsurance portfolio, with less focus on pure property catastrophe risk, Hiscox explained.

The Kiskadee Latitude fund launched and began underwriting on 1st January 2019, with over $100 million of capital support from the investor.

Hiscox Re & ILS, the division of the company where the Hiscox Re ILS funds and Kiskadee strategies are managed, suffered from the impacts of the major losses during 2018.

Chairman of Hiscox Robert Childs commented, “Our reinsurance and ILS operations experienced a very active year for claims, with exposure to hurricanes and wildfires in the US, typhoons in Japan, hailstorms in Australia and large claims in cyber and marine hull.”

CEO Bronek Masojada, further explained, “Hiscox Re & ILS has been hit by a second year of catastrophe claims. Our aggregate protection products, our risk excess covers and some specialty areas – all areas of focus since 2012 – meant that the higher frequency of mid-sized catastrophes and individual large losses in 2018 hit us harder than 2017’s fewer but larger catastrophes. Our products worked, our clients are happy, and while it cost us more, that is the nature of our business.”

Despite the losses, Masojada cited “good ILS performance” through 2018, but noted that more generally reinsurance market conditions remain tough.

The firms gross premiums written in its Hiscox Re & ILS division grew 15.9% to $812 million in 2018, with property catastrophe reinsurance and specialty reinsurance being the key drivers of growth.

However, the catastrophe events and some other large claims impacted profits, causing a loss of $23.2 million  and a combined ratio of 116.9%.

“As explained earlier, the product mix sold to customers responded more to the run of mid-sized catastrophes and large individual losses that occurred in 2018 as compared to the fewer larger catastrophes in 2017. That is the nature of our business – fortuity influences our year-to-year performance, but good underwriting shines through over time,” Masojada said.

He went on to explain the market conditions seen, “There was an initial surge of prices in the first quarter following the 2017 hurricane losses, and we were able to write a disproportionate amount of business at that time, but as rate increases tapered off during the course of the year, our growth became more subdued. Overall, we achieved rate increases of 5% for the year.

“During the 1 January 2019 renewal period, we saw overall rate improvements of around 2% across all lines, driven by increases in retro, risk excess, casualty and specialty. As we look towards the Japanese renewals at 1 April and US renewals at 1 June and 1 July, both of which will be loss-affected, we anticipate further pricing correction. ”

On the insurance-linked securities (ILS) funds managed at Hiscox, Masojada commented, “We have seen sustained demand for our ILS offering. Our funds have performed in line with expectations, with the losses of the second half consistent with modelled outcomes. Assets under management now exceed $1.5 billion after last year’s losses.”

With relatively static assets under management, despite the impact of catastrophe losses, the Hiscox Re ILS funds and Kiskadee strategies are well-positioned to expand further as 2019 continues.

With the launch of the new Latitude ILS fund, Hiscox now has a new string to its bow and an ability to share the market-leading primary insurance returns that the company is known to generate with third-party investors.

That also bodes well for continued growth of its ILS assets under management during the year ahead.

Looking forward Masojada commented, “Our ambition for 2019 is to continue to grow premiums, albeit at a slightly slower pace than 2018. We are hopeful that positive pricing momentum and ongoing portfolio optimisation will lead to improved underwriting profits, with higher interest rates driving better investment returns.”