Forecasts & Results
Hiscox reports interim results for 1H22
Posted 03/08/2022 – Quick takes
Hiscox plc has reported its interim results for the six months ending 30th June 2022. The highlights of the results are as follows:
- Group Gross Written Premiums (GWP) rose +9.2% to US$2,649.8m (1H21: US$2,426.2m).
- In Hiscox London Market, the focus continues to be on selective growth. Deliberate reductions in under-priced natural catastrophe exposure resulted in a 3.0% decline in GWP to US$591.9m (1H21: US$609.9m). Growth continues in casualty, marine, energy and flood.
- Growth for Hiscox Re & ILS largely derives from ILS inflows and an improving market environment for property catastrophe. GWP increased by +37.1% to US$822.7m (1H21: US$599.9m).
- Positive rate momentum continues across the group, with rates up +8% during 1H22 in London Market and +13% in Hiscox Re & ILS.
- London Market rate increases have been driven by Cyber, Marine and Property, partially offset by rate reductions in D&O.
- Hiscox Re & ILS rate increases were driven by North American Catastrophe and Cyber Reinsurance.
- The group has reported good claims performance, with natural catastrophe losses in-line with expectations.
- The group’s combined ratio was 91.3%, a 1.8-point improvement vs. 93.1% in 1H21.
- The ultimate group loss from all risks in Ukraine & Russia (Ukraine net loss), including aviation, is US$48m net of reinsurance, with US$34m attributable to Hiscox London Market.
- London Market reported a combined ratio of 86.1% (1H21: 81.7%) after the Ukraine net loss.
- Hiscox Re & ILS reported a combined ratio of 80.2% (1H21: 76.7%) after the Ukraine net loss.
- Growth momentum is building for Hiscox Retail, with GWP +1.5% to US$1,235.2m (1H11: US$1,216.4m), driven by Europe and the UK. Hiscox Retail produced a combined ratio of 95.5% in 1H22 (1H21: 100.7%) with the group forecasting a combined ratio for Hiscox Retail of 90-95% in 2023.
- Hiscox plc is “conservatively reserved” with a 11.0% margin above actuarial best estimate (1H21: 11.3%).
Prior Year Releases
- The group result includes prior year releases of US$76.9m for 1H22, down slightly on the 1H21 release of US$79.0m.
- The group reported an investment loss of -3.0% or US$214.1m (1H21: profit of +0.8% or US$61.9 million), due to rising interest rates, widening credit spreads and equity market losses. The fixed income losses are mostly unrealised.
Aki Hussain, Group CEO, commented: “I am pleased with the Group’s performance during the first half of the year as rate strengthening and disciplined growth drove much-improved underwriting profitability. Whilst macro-economic and geo-political concerns are affecting the global economic outlook, our strategy and diverse portfolio of businesses continues to create opportunity, and we are well positioned to generate high quality growth and earnings. Our big-ticket businesses have experienced positive market conditions and our well-balanced portfolio is generating attractive returns.”
The main headline is the disappointing group investment loss of -3.0%, which has in turn largely driven the overall group pre-tax loss of US$107.4m. This compares to the recently reported 1H22 listed peers investment losses from Beazley -2.5% & Lancashire -3.8% and is not at all surprising given the recent performance of financial risk markets globally. Of greatest importance for Alpha’s clients is the performance of Hiscox London Market and Hiscox Re & ILS, since these two divisions make up the majority of the income for Syndicate 33. Both saw a slight year-on-year deterioration in their combined ratios, largely due to the impact of the Russia-Ukraine conflict, although both are still attractive in the 80’s. However, the limited exposure of Hiscox to the Aviation class means that Hiscox has no exposure to the leasehold aircraft stranded in Russia, which will inevitably give them a competitive advantage over several of their peers. The rate picture for both divisions remains broadly encouraging, albeit the rate reductions in D&O are unhelpful (something that Hiscox’s peers are also highlighting), with improvements in classes such as Cyber (direct and reinsurance), Marine and Property (direct and reinsurance). Overall, these results are solid, if a little lacklustre (hence the share price softness) and the slight decline in the London Market GWP may indicate limited pre-emption opportunities for Hiscox syndicate 33 for 2023.