Hiscox delivers $168m profit for H1 2019 despite challenging claims, says CEO Masojada

Hiscox has delivered profits in its results for the first six months of 2019 “despite a more challenging claims experience”, said Bronek Masojada, chief executive at the re/insurer.

The re/insurer reported a 7 percent rise in gross premiums written (in constant currency) to $2.33 billion in the first half of 2019 from $2.22 billion in the same six months in 2018.

Profit before tax increased to $168 million in H1 2019 up from $162.7 million in the same period a year before, which Hiscox said was driven by a “good” investment return of 4.8 percent, up from 0.7 percent in 2018. While net premiums earned for H1 this year rose to $1.31 billion from $1.2 billion.

However, the company’s group combined ratio rose to 98.8 percent from 87.9 percent in H1 2018. The group emphasised that it had “experienced a higher volume of claims in the first half of 2019 than the same period last year”.

The re/insurer said it had “strengthened” reserves for prior-year claims from Typhoon Jebi, Hurricane Michael and the risk excess book, as industry loss estimates have increased.

But chairman Robert Childs said “every business segment grew”, with Hiscox Retail “once again the main profit generator, albeit in a more active period for claims”. However, he added that retail growth had “moderated as planned” as the firm exercised discipline in US private company directors and officers' (D&O), and implemented new systems and ways of working in the UK.

Hiscox Re and Hiscox London Market were reported to be “capitalising on opportunities as they arise, as pricing momentum continues to build”.

The Hiscox Re & ILS segment, which comprises the group's reinsurance businesses in London and Bermuda and insurance-linked security (ILS) activity written through Hiscox ILS, reported a rise in GPW to $698.3 million up from $655.6 million, while its profit before tax plummeted to $14 million in H1 2019 from $57.8 million in H1 2018. And the segment’s combined ratio worsened to 111.3 percent from 71.5 percent.

The results showed that while the segment was seeing some positive rate momentum, particularly in those lines hardest hit by two consecutive years of losses, “this is dampened by the continued abundance of reinsurance capacity available from traditional and alternative sources”.

Hiscox explained: “We have responded rationally, growing in wildfire liability where we have seen rate increases of up to 200 percent, and managing wildfire-exposed property business where rates in some cases have not responded in line with our view of the risk.”

Focusing on just Hiscox ILS, the firm said “our funds have performed in line with expectations”.

“In January, we started writing business to our new fund, the Kiskadee Latitude Fund, which gives investors access to a more diverse portfolio of insurance and reinsurance risks with less focus on pure property catastrophe risk. Assets under management are currently at $1.6 billion.”

Commenting on the wider group results, Masojada said: "Hiscox delivered a profit of $168 million for the first half despite a more challenging claims experience. Looking ahead, with six consecutive quarters of rate growth in some Lloyd's business, the market is in a better position than it has been for some time. In retail, we will continue to invest in our infrastructure and marketing to drive sustainable growth. Our strategy of diversification gives us options."

Childs added: “In our London Market business, market losses and renewed discipline in Lloyd's are putting upward pressure on rates, and the picture looks more positive than this time last year. In reinsurance, where rate improvement had been more sporadic in the first quarter, we have seen good price increases on loss-affected risks in the second quarter and are finding opportunities in the retrocession market, where reduced capacity has significantly improved rates.”

But he added: “As ever, the results of the half year are no indication of the results of the full year, so as we approach hurricane season there is still potential for the wind to blow us off course.”

He said: “At the full year, I talked about the volume of change impacting the business and our expectation that would continue in 2019.

“In Retail, embedding our new IT systems and ways of working has taken more time than we had hoped but the alternative would have been to be strangled by legacy systems as so many of the banks have been. As the year progresses, the UK is resolving its issues and the USA is benefiting from the UK's experience.”

He said this infrastructure was “essential” for an efficient multi-channel approach, which enables customers to choose how they buy products - whether that is through a broker, online, by phone or through an intermediary.

“In big-ticket lines, we are very supportive of Lloyd's and their drive for positive change,” Childs said. “The market must become a more efficient and modern place to operate or it will slowly wither on the vine. Such choices are made easier when there is no choice. I am pleased that our senior leaders are taking an active role in initiatives such as PPL which will define the market's future. The positive momentum for rates in big-ticket lines is good news, and although the benefits will be gradual we are ready to make the most of the opportunities as they arise.”

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