Hiscox 2019 Annual Results

Posted 02/03/2020 – Insights

Hiscox Ltd, the owner of Hiscox Syndicates Limited, (managing agent of syndicate 33 & SPA 6104) has announced its 2019 calendar year results.

Bronek Masojada, Chief Executive Officer, commented:

“2019 showed the value of our long-standing strategy of building and broadening the balance in our business between big-ticket lines and more steady retail earnings. Good performance by Hiscox UK and Hiscox Europe, combined with strong investment returns, offset the impact of a third year of catastrophe events and some adverse claims development in the big-ticket business and Hiscox USA. This allowed us to deliver a combined ratio of 105.7% (2018: 94.9%) and a pre-tax profit of $53.1 million (2018: $135.6 million). This is below our ambitions and your expectations of us. We have taken necessary action which is having a positive impact.

Gross premiums written grew in constant currency by 8.1% to $4,030.7 million (2018: $3,778.3 million). We have seen good rate momentum in many areas, and will continue to grow in a disciplined way. We have cut over $200 million of underperforming business, but we are still growing having found new opportunities where conditions are good and rates are healthy. In the same way that our strategy of balance has given us resilience in the short term, it drives opportunities in the medium term and we are optimistic about the prospects for our $2.2 billion Retail business, and in the benefit of the repricing we are seeing in our London Market business.”

Alpha comment

As chief executive Bronek Masojada conceded, these figures are below the expectations of a London market operation of Hiscox’s standing. Though a worse year-on-year performance was recorded for each of its major divisions, Hiscox Re & ILS witnessed the greatest deterioration in combined ratio (2019: 164% vs. 2018: 117%). Whilst Hiscox reminded analysts that the division had produced an aggregate c. $700m of profit for the period 2010-2019; the losses of the past three years feel somewhat ‘market underperform’ and suggest that remediation of the book post the 2017 HIM losses has been found wanting. It does perhaps bear reflection that currently 75% of this business is ceded to third party capital providers, from whom Hiscox collects a fee (and, where applicable, a profit commission).

Turning to the London Market division, which houses syndicate 33, a combined ratio of 104% for 2019 compares to 89% for 2018. In our comment on the 2018 results, we said that: ‘having taken a disciplined position and cut back $400m of income from areas of underperformance in recent years, fruit has come to bear for the London Market book (housed mostly within syndicate 33), with positive rating momentum in higher value lines helping deliver a combined ratio of 89% in this segment’. Though the positive news regarding rate rises continues, Hiscox believes that 10% of the book (c. $95m) remains at pricing levels which are not adequate to achieve Hiscox’s long term profit expectations. Specific areas in need of further remediation include US directors’ and officers’ liability, ‘blue collar’ general liability and European commerical property. In broad terms, Hiscox should be able to achieve these required improvements in its London Market division, due to its size and influence in the market, and also as rate rises are set to continue throughout 2020 into 2021.

We anticipate that Hiscox’s overall combined ratio at 106% will be, unusually, slightly worse than the Lloyd’s market’s on a GAAP basis, which will be released on 26th March. However, we do still expect syndicate 33 to produce a positive outcome for 2019 on a three year account basis.

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