The continued growth and expansion of its insurance-linked securities (ILS) and reinsurance linked investments business is one of the bright spots at re/insurer Hiscox Group, while its experience in the London market is less to write home about.
Kiskadee Investment Managers, the Hiscox owned insurance-linked securities (ILS) fund and third-party reinsurance capital management unit, having passed the $1 billion of assets under management mark in June 2016 continues to increase its contribution to the re/insurer.
In the firms interim management statement today, Hiscox explains that Kiskadee and ILS in general has been one of the key drivers of growth for the firm.
In the first-half of 2016 Hiscox increased its gross catastrophe reinsurance premiums underwritten in order to facilitate growth at Kiskadee and put the third-party investor capital raised to work.
The firm continues to utilise lower-cost third-party capital to grow into catastrophe reinsurance in areas where its own balance-sheet capital likely cannot be put to work as profitably.
The firm also explained that in its reinsurance division, Hiscox Re, its overall gross premiums underwritten rose by 26.8% to US$649.2 million (over 2015’s US$512.1 million), with “casualty and specialty lines as well as business written for our ILS business being key drivers of growth.”
Kiskadee has now reached a scale, at over $1 billion, where it will be making a much more meaningful contribution to Hiscox’s bottom-line. It also means that it will generate growing interest with investors and the firm said that its ILS strategy, “continues to attract interest from new and existing investors.”
However the growth and continued success of the Kiskadee ILS venture at Hiscox is perhaps overshadowed by the firms comments on the overall state of the insurance and reinsurance market, particularly the London market.
As if the London re/insurance market wasn’t facing enough uncertainty in the wake of the Brexit vote, Hiscox explains that it is ready to pull-back materially in 2017 as a result of the softening of pricing there.
Commenting on the increasingly challenging state of the London insurance and reinsurance market, Hiscox said this morning; “We expect conditions in the London Market to remain difficult. We will continue to explore creative ways to navigate this soft market and are actively reducing in areas where rates are under severe pressure, particularly in aviation, marine and energy and US big ticket property. We expect the business to shrink materially in 2017.”
Hiscox also said that challenges remain in reinsurance, as both “Hiscox London Market and Hiscox Re continue to face difficult trading conditions.”
Bronek Masojada, Hiscox Group CEO, “Margins are evaporating in some areas of the London Market, and we are adjusting our underwriting accordingly.”
In reinsurance Hiscox sees signs of the softening coming to an end, with “Rate pressure on international business, with less pressure on US catastrophe business.”
This leads the company to hope for, “An end to rate reductions in reinsurance, given depleting reserves, poor investment returns and recent catastrophes including Hurricane Matthew.”
However Kiskadee is continuing to enable Hiscox to grow into catastrophe reinsurance, given the efficiency of the ILS model and its third-party capital.
So this poses a question as to whether Hiscox could look to leverage third-party ILS capital in the London market, as other ILS fund managers have been doing. Particularly in areas of shorter-tailed specialty risk and the big-ticket U.S. property lines where it sees the softening currently.
Will Kiskadee be expanded to provide capacity via Hiscox’s syndicates to augment its London market underwriting capability with capital markets capacity? We’re sure it’s been under consideration.