Hiscox launched new sidecar, first cat bond fund and raised $140m for 2024

Hiscox Group had a particularly busy end to the year in the insurance-linked securities (ILS) space, with a new collateralised reinsurance sidecar and its first catastrophe bond fund launched, while its Hiscox ILS fund management unit also raised an additional $140 million of new capital for the January renewals and doubled its fee income.

Around the same time, our readers will also know that Hiscox was in the market with its first catastrophe bond in over two decades, as the company sponsored the $125 million Ocelot Re Ltd. (Series 2023-1).

So it was a particularly active time in insurance-linked securities (ILS) for Hiscox, as it looked to deepen investors relationships and build-out new reinsurance product offerings for third-party capital providers.

While the performance achieved on the underwriting side by its reinsurance division, Hiscox Re & ILS, has helped the ILS unit deliver a near doubling in annual ILS fee income for 2023.

At the same time though, Hiscox saw its third-party assets under management shrink slightly to $1.8 billion over the course of 2023, down from $1.9 billion a year earlier.

A further reduction in ILS assets was experienced at January 1st 2024, with a planned capital return of $270 million.

But, this was offset with a raise of $140 million of new capital in time for the January 2024 reinsurance renewals, which included capital from new ILS investors and the newly-launched collateralized reinsurance sidecar vehicle, Hiscox explained this morning.

As a result, assets under management of the Hiscox ILS unit are reported at $1.6 billion as of January 1st 2024.

Hiscox said that the effect of net ILS outflows in 2023 has been offset by a combination of Hiscox’s own allocation of capital increasing and a significant increase in ceded quota share capacity.

“As a result, gross income was maintained, net income increased materially and the excellent underwriting result has not only generated a 69.8% undiscounted combined ratio, but a near doubling of fee income year on year,” the company explained.

Hiscox ILS also launched its first dedicated catastrophe bond fund for the start of 2024, which will “diversify our ILS funds’ product offering,” the Hiscox said.

“All of these will contribute to the bottom line through fee income that will earn through in 2024 and beyond,” Hiscox further stated.

For the Hiscox ILS unit, the parent company foresees a strong pipeline of further opportunities in 2024 and beyond.

Explaining the strategy, Hiscox reported, “The Hiscox Re & ILS business model has access to several sources of capital ranging from Hiscox own capital to third-party capital through a number of different mechanisms including strategic quota share partnerships, ILS funds, and more recently a side-car and catastrophe bond fund. This strategy enables the business to compete effectively in our specialist areas through providing scale and lowering the cost of capital, while providing valuable fee income for risk origination and performance-dependent profit commissions.”

The strategy is clearly working, as Hiscox has reported that thanks to the strong underwriting result, fee income from the Hiscox ILS and third-party reinsurance capital business has now risen from $51.1 million to $101.7 million with “substantial profit commissions” generated in 2023.

Now, with ILS assets under management likely more stable after the planned capital return, the Hiscox ILS unit can plan for growth, with a broader range of strategies available to offer to investors and a strong year of performance to help in attracting them.

Hiscox also commented on the successful issuance of the Ocelot Re cat bond in late 2023.

Saying that, “A notable development in the reinsurance market in 2023 has been a buoyant natural catastrophe bond market. The Group has taken the opportunity to diversify our outwards reinsurance programme by issuing our own $125 million natural catastrophe bond in December 2023, which provides multi-year protection against North American named storms and earthquakes. The issue was upsized due to strong demand and priced attractively.

“In Hiscox Re & ILS, we launched a new catastrophe bond fund facility to complement our ILS offering, in time for the January renewals.”

View details of dedicated ILS fund managers and reinsurers offering ILS-style investment opportunities in our Insurance-Linked Securities Investment Managers & Funds Directory.