Hiscox ILS inflows deployed into hardening US cat and retrocession

In reporting its results this morning, specialist underwriter Hiscox Group said that net inflows into its Hiscox ILS business had allowed the company to capitalise on the hard market in North American catastrophe reinsurance and retrocession in the first-quarter.

Hiscox had previously announced that it raised just over $217 million of new assets under management for its Hiscox ILS unit at the beginning of the year, which has allowed its insurance-linked securities (ILS) and collateralised reinsurance underwriting team to put more capital to work in the better-priced environment.

This morning the company explained that its Hiscox Re & ILS division, where reinsurance and ILS activities are undertaken, increased its gross premiums written by 45.8% to $421 million in the first-quarter of 2022, up from $288.8 million a year earlier.

Helping Hiscox to achieve this were “ILS net inflows of $217.5 million” which the company said “allowed the business to capitalise on the hard market in North American catastrophe and retrocession.”

Hiscox added that, “This is consistent with a strategy of building balanced portfolios and growing fee income.”

Natural catastrophe losses during the first-quarter were in-line with expectation and fell within the budgeted amount, Hiscox said, which is positive for the ILS investment strategies operated by the company.

On the war in Ukraine, Hiscox said it has reserved roughly $40 million after reinsurance for expected losses, which are mainly through its political violence, war and terror (PVWT) portfolio.

Aki Hussain, Chief Executive Officer, Hiscox Ltd, commented on the results, “The Group delivered a solid performance in the first quarter. The rate environment remains favourable and both our big-ticket and Retail businesses delivered good underlying growth in areas where we see attractive opportunities. In big-ticket, we continue to position our businesses for strong and sustainable returns by growing where we see opportunity and reducing exposures where we believe risks are under-priced. In Retail, our US and European operations are making good progress in rolling out new technology platforms to support our growth ambitions.

“Beyond the quarterly performance, we remain deeply saddened by the conflict in Ukraine. We are supporting affected customers and have contributed to the global humanitarian aid effort through donations to the Red Cross and the Disasters Emergency Committee.”

The company provided some insight into how the hardening market is helping to improve profitability of reinsurance and ILS business.

Hiscox Re & ILS secured an average rate increase of 10% across its Q1 portfolio year-on-year, the company said.

This was “driven by capacity constraints in retrocession and North American catastrophe,” Hiscox explained, saying that it is on top of “a cumulative rate increase of 35% since 2017, as at the full year 2021.”

Due to the ongoing global “political and economic uncertainty and inflationary pressures,” Hiscox said that “rate momentum is expected to continue as the year progresses.”

At the Japanese renewals at April 1st 2022, Hiscox said its reinsurance and ILS division achieved “a low single digit rate increase, as both the wind and earthquake covers were significantly repriced following loss activity in earlier years and it continues to be seen as a high quality portfolio of business.”

Net premiums written in Hiscox Re & ILS grew by 20.5% and the company anticipates further expansion, leveraging its ILS capital inflows to assist here, while at the same time non-renewing certain aggregate and risk lines, to minimise exposure to attritional losses.

“The combination of a rate adequate and balanced net portfolio, with significant AUM to be deployed through our ILS structure in order to generate fee income, is expected to lead to strong and capital efficient returns,” the company explained.