Forecasts & Results

Hiscox plc releases 3Q22 trading statement

Posted 02/11/2022 – Quick takes

Hiscox plc has provided a trading statement for the 9 months to 30th September 2022.
• Group Gross Written Premiums (GWP) rose +6.3% to US$3.68bn (vs. US$3.46bn for 3Q21), an increase of c9% in constant currency, reflecting strong rate momentum across all business segments.
• Premium growth remains ahead of Hiscox’s claims inflation assumptions.
Hiscox London Market continues to benefit from aggregate rate increases across the portfolio. Hiscox London Market saw a risk adjusted rate increase (RARC) of +7%, ahead of expectations. This takes the cumulative rate increases since 2017 to +72% for Hiscox London Market. The -6.1% reduction in GWP (US$845.3m vs. US$900m for 3Q21) is primarily due to the deliberate and on-going reduction in under-priced natural catastrophe exposure via household and commercial binders. D&O and general liability rates have been softening, although Hiscox believes that those classes remain attractively priced, having achieved cumulative rate increases of over +250% and +130% respectively over the last 5 years. Terrorism rates and terms & conditions are starting to exhibit positive rating momentum as a result of the market absorbing Ukraine-related losses. Household and commercial property achieved +10% rate growth in the period, but Hiscox does not believe that pricing is yet sufficient to achieve its target returns, so Hiscox is continuing to reduce its catastrophe exposures in this area.
Hiscox Re & ILS saw GWP grow by +32.3% to US$1.067bn (3Q21: US$806.5m) as the result of further hardening market conditions. Hiscox Re & ILS had a RARC of +12.5% in the period (taking cumulative rate increases since 2017 to +52%) and believes that the rating outlook for the January 2023 renewals is excellent (reinforced by the impact of Hurricane Ian).
• The group reported an investment loss of US$293.9m (a -4.2% return) for the period vs. a 3Q21 profit of US$62.7mn (a +0.9% return), primarily due to unrealised mark-to-market losses on the group’s bond portfolio, which should unwind as the bonds mature (or ‘pull to par’).
• The group has reserved US$135m, net of outwards reinsurance, for Hurricane Ian. Hiscox said that this is well within the modelled range (based upon an insured market loss of US$55bn), reflecting the continued reduction in under-priced natural catastrophe exposed risk.
• The group does not appear to have material exposures to other natural catastrophe losses, such as Typhoon Nanmadol.
• The group has not changed its previously announced US$48m loss estimate for Ukraine.
Aki Hussain, Group CEO, said: “The Group has performed well in a complex underwriting environment … The performance of our big-ticket businesses remains robust after the impact of Hurricane Ian, and improving conditions are presenting new opportunities.”

Alpha comment

This is an encouraging trading statement from Hiscox, which combines (i) on-going remediation of the underwriting book(s) which allows Hiscox to write better rated business at more attractive terms; (ii) continuing positive rate increases across both insurance and reinsurance; and (iii) a lower than expected loss (on the basis of the equity market forecasts that we saw prior to this statement) from Hurricane Ian. The performance of both Hiscox London Market and Hiscox Re & ILS bodes well for supporters of Hiscox syndicate 33 for the 2022 year of account – as well as for capital supporters of underwriting at Lloyd’s as a whole.

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