Forecasts & Results

Hiscox plc group preliminary FY22 results to 31st December 2022

Posted 08/03/2023 – Quick takes

Headline figures:

                                                   2022                       2021
Group GWP                        US$4,424.9m        US$4,269.2m
Group underwriting profit   US$270m              US$216m
Group combined ratio         90.6%                   93.2%
Investment return                (2.6)%                   0.7%
Prior year development       US$239.1m            US$148.9m

Highlights:

  • Group gross written premiums (GWP) +3.6% to cUS$4.4bn (FY21: cUS$4.3bn) boosted by an attractive rate environment, offset by a strengthening US Dollar.
  • Group underwriting profit +25% to cUS$269.5m (FY21: cUS$216m), Hiscox’s highest group underwriting profit since 2015, notwithstanding another year of large natural catastrophe and man-made losses.
  • Group combined ratio (CoR) of 90.6% (FY21: 93.2%).
  • No material change to Group net losses from Hurricane Ian of US$135m and Russia/Ukraine of US$48m.
  • Group reserves at 8.9% above actuarial best estimate (FY21: 11.7%), at the upper end of the group’s 5% – 10% range.
  • Group investment loss of cUS$(187)m (FY21: profit of cUS$51m), primarily due to unrealised mark-to-market losses. Bond reinvestment yield of 5.1% at 31st December 2022 (vs. 1.0% at 31st December 2021).
  • Hiscox plc Chair, Robert Childs, to retire during 2023.
  • Hiscox London Market GWP down (4.8)% to cUS$1.1bn (FY21: cUS$1.2bn), mainly due to remediation of the property binder portfolio. CoR of 84.8% (FY21: 89.1%), 4.3 percentage points (ppts) improvement despite net losses from Hurricane Ian of US$40m and Ukraine US$34m. This is the division’s third consecutive year with a combined ratio in the 80% range. The attractive rating environment means London Market is expected to grow gross premiums written in 2023.
  • Hiscox Re & ILS GWP +28.5% to cUS$1.0bn (FY21: cUS$808m) due to ILS inflows in 1H22 and an improving underwriting and rating environment. CoR of 81.6% (FY21: 68.0%) despite net losses from Hurricane Ian of US$90m. Due to new capital deployment during the 1/1 2023 renewals, Re & ILS net premiums are +49% year-on-year in January.

Aki Hussain, Group CEO, commented: “I am very pleased with the progress made across the Group during 2022, as we delivered the strongest underwriting result in seven years … The outlook for 2023 is very positive. We are facing favourable market conditions in all of our key markets”.

Rates:
• The group benefitted from favourable rating in 2022 and now sees an environment that is exhibiting all the signs of a hard market, particularly in primary insurance.
Hiscox Re & ILS benefitted from an average risk adjusted rate increase (RARC) of +13% in the period, primarily driven by North American property and retrocession (+14% and +16% respectively), with Florida exhibiting particularly hard market conditions. Specialty lines also experienced double-digit increases, driven by cyber and terrorism, with RARC +42% and +26% respectively. Since 2017, Hiscox Re & ILS has achieved cumulative RARC of over +50% across the portfolio. Hiscox anticipates material improvement across nearly all lines for 2023.
Hiscox London Market benefitted from RARC of +6% in 2022. Since 2017, this business has achieved cumulative RARC of +70%. RARC remained positive for all classes of business except D&O, which Hiscox believes was very attractively priced, having achieved cumulative RARC of over +240% since the end of 2017. Overall, Hiscox sees a positive rate outlook for London Market in 2023, with the strongest growth expected in terrorism and property lines.

Inflation:
• Inflationary pressures mitigated via a combination of exposure indexation and RARC, with current pricing and reserving assumptions incorporating “expected inflation which is a multiple of experience in recent times”.

Hiscox London Market:
• GWP down (4.8)% to cUS$1.1bn (FY21: cUS$1.2bn); CoR of 84.8% (FY21: 89.1%); Underwriting profit +22.8% to cUS$110m; Profit before tax (PBT) cUS$53m (FY21: cUS$105m).
• Strong growth in selected lines (i.e. D&O, general liability, upstream energy, terrorism and cargo) offset by reduced exposure to under-priced catastrophe-exposed business in the binder portfolio (which has halved since 2018), the impact of Russian sanctions and tempered flood growth.
• Hiscox expects London Market to grow GWP in 2023, whilst continuing to maintain a disciplined approach, primarily via specialty and casualty lines.
• Hiscox to launch a new ESG-focused Lloyd’s sub-syndicate within Syndicate 33, complementary to Hiscox London Market’s existing business.

Hiscox Re & ILS:
• GWP +28.5% (+34.4% excluding reinstatement premiums) to cUS$1.0bn (FY21: cUS$808m); CoR of 81.6% (FY21: 68.0%); Underwriting profit cUS$58m (FY21: cUS$91m); PBT cUS$22m (FY21: cUS$99m).
• Combined ratio 81.6% (FY21: 68.0%)
• Strong performance in retrocession and North American & international property catastrophe lines, underpinned by continued pressure on the supply of capacity.
• The combined ratio of 81.6% was despite a US$90m net loss from Hurricane Ian.
• Disciplined underwriting actions in 2023 will continue to see a reduced exposure to secondary perils.

2023 outlook:
• Hiscox are “very optimistic about the outlook for 2023”, with “reinsurance market conditions … the best we have seen in over a decade”.
• The London Market business is “building a solid and dependable track record of profitability” and is expected to grow as it deploys “underwriting aggregate with discipline in the improving market conditions”.
• Hiscox Re & ILS “has the expertise, strong balance sheet and financial flexibility to capitalise on the current trading conditions”.
• Investment returns, a headwind over the last 12 months, are expected to be “a tailwind in 2023”.

Alpha comment

These are excellent results from Hiscox that bode well for those of our members that supported syndicate 33 & SPA 6104 for the 2022 year of account.

The reinsurance result is impressive despite the Hurricane Ian loss which is encouraging for SPA 6104.

The combined ratio for Hiscox London Market, which is predominantly syndicate 33, is worthy of particular praise and bears witness to the remediation of that book during recent years.

The negative impact of investment losses (which will have impacted the final 2020 YoA result) is as expected given the move in interest rates during 2022, but much of the losses should unwind to the benefit of the 2021 YoA & 2022 YoA.

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