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May 06, 2022

Hiscox Group Q1 2022 Trading Statement

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Hiscox Ltd released a short Trading Statement as at end-March 2022 to update investors.

The full release is available here

The Group's Gross Written Premiums (GWP) increased by 10% to US$1,386m as a result of increased writings particularly in the "Hiscox Re & ILS" division.

Some precis of the statement provided below:

Rates

"Hiscox London Market achieved an average rate increase across the portfolio of 8% year-on-year; this is in addition to a 60% cumulative rate increase since 2017 that we reported at the year end."

Income was cut by 3% as a result of deciding not to renew any business considered to be under-priced and catastrophe exposed. This mainly affected their books of household, major property and commercial business. Net premiums were up though as they ceded less to reinsurers.

"Hiscox Re & ILS benefited from an average rate increase of 10% across the portfolio year-on-year, driven by capacity constraints in retrocession and North American catastrophe. This is in addition to a cumulative rate increase of 35% since 2017..."

Ukraine

The above divisions will have most of any exposure emanating from their political violence, war and terror (PVWT) and marine books. Fortunately, Hiscox pulled out of aviation hull and political risk/trade credit several years ago. "While the losses from the conflict in Ukraine incurred in the first quarter are minimal, the Group has reserved circa $40 million (mostly IBNR) net of reinsurance to cover claims from the conflict in Ukraine, mainly in Hiscox London Market with much smaller net claims expected in Re & ILS.

We have taken into account the property and marine exposures in Ukraine, which represent the main loss areas for the Group, and due to the extensive reinsurance in place, we believe our net estimate to be robust."

Inflation

Hiscox is including the possible future effects of inflation on their loss projections and pricing models. They have also bought run-off protection for the casualty reinsurance book protecting US$116m of reserves from deterioration caused by future inflation. "In total, 18% of 2019 and prior years’ Group reserves, mostly casualty longer tail in nature, are now reinsured against future loss performance deterioration to a 1-in-200 year return period, thus acting as an effective mitigant from inflationary pressures on the back book."

Business interruption

92% of all notified claims have received an outcome and the level of claims continues within their actuarial best estimate and reassuringly Hiscox stated that they "hold conservative margin above the best estimate."

Investments

Unlike last year when there was a profit, this year, as a result of interest rates increasing, there was a investment loss on the portfolio of US$119m. The short dated and corporate bonds in the portfolio were marked down in value but extra income was received with a current yield of 2.4% on the bond portfolio up on 1% at year-end.

Comment

The syndicate (represented by the Hiscox London Market division) has clearly built upon past years' corrections to the book and taken further prudent and principled action to re-underwrite the book, improving both its balance and potential profitability. The cumulative rate increases are driving a substantial increase in premiums.