TIDMHSX
RNS Number : 3727K
Hiscox Ltd
05 May 2022
Hiscox Ltd trading statement
Hamilton, Bermuda (5 May 2022) - Hiscox Ltd (LSE:HSX), the
international specialist insurer, today issues its trading
statement for the first three months of the year to 31 March 2022
.
Highlights:
-- Group gross premiums written up 10.3% to $1,386.3 million, as
strong growth in Re & ILS and a good performance in Retail
digital partnerships and direct (DPD) offset planned slow-down in
Hiscox USA.
-- Hiscox Retail underwriting profitability is continuing to
progress with positive momentum and remains on track to return to
90%-95% combined ratio range in 2023; gross premiums written up
4.0% in constant currency to $670.8 million (2021: $663.9 million).
Momentum for the underlying business [1] is improving with growth
of 7.6% in constant currency.
-- Group DPD grew gross premiums written by 9.6% in constant
currency. US DPD growth has been intentionally slowed down to 12.5%
during the IT platform replacement which is expected to be largely
completed in H1; US DPD is on track to deliver 15%-20% growth at
full year.
-- Hiscox London Market gross premiums written declined 3.1% to
$294.5 million (2021: $303.9 million), as a result of a deliberate
reduction in under-priced natural catastrophe exposure.
-- Excellent growth in Hiscox Re & ILS, with gross premiums
written up 45.8% to $421.0 million (2021: $288.8 million), as ILS
net inflows of $217.5 million allowed the business to capitalise on
the hard market in North American catastrophe and retrocession.
This is consistent with a strategy of building balanced portfolios
and growing fee income.
-- Investment return loss of $119.4 million (2021: profit of
$20.7 million), or a negative return of 1.7% year to date (2021:
positive return of 0.3%), is the result of unrealised losses in our
bond portfolio due to higher interest rates, which are non-economic
and non-cash in nature. Reinvestment yield has improved
significantly to 2.4%.
-- Good non-natural catastrophe loss performance across all business divisions, as a result of re-underwriting actions undertaken over recent years.
-- Natural catastrophe losses are within the first quarter
budget and in line with our expectations.
-- While the losses from the conflict in Ukraine incurred in the
first quarter are minimal, the Group has reserved circa $40 million
net of reinsurance for expected losses mainly through the political
violence, war and terror (PVWT) portfolio; impact of Russian
sanctions on the Group is minimal.
-- No change to previously-disclosed estimates for claims related to Covid-19.
-- The Group remains strongly capitalised with liquid resources
sufficient to pay claims, dividends and execute on its growth
strategy where attractive opportunities arise.
Aki Hussain, Chief Executive Officer, Hiscox Ltd, commented:
"The Group delivered a solid performance in the first quarter.
The rate environment remains favourable and both our big-ticket and
Retail businesses delivered good underlying growth in areas where
we see attractive opportunities. In big-ticket, we continue to
position our businesses for strong and sustainable returns by
growing where we see opportunity and reducing exposures where we
believe risks are under-priced. In Retail, our US and European
operations are making good progress in rolling out new technology
platforms to support our growth ambitions.
"Beyond the quarterly performance, we remain deeply saddened by
the conflict in Ukraine. We are supporting affected customers and
have contributed to the global humanitarian aid effort through
donations to the Red Cross and the Disasters Emergency
Committee."
Gross written premiums for the period :
Gross written premiums Gross written Growth in USD Growth in constant currency
to 31 March 2022 premiums
to 31 March 2021
---------------------- ----------------------- ------------------ -------------- ----------------------------
US$m US$m % %
---------------------- ----------------------- ------------------ -------------- ----------------------------
Hiscox Retail $670.8 $663.9 1.0% 4.0%
---------------------- ----------------------- ------------------ -------------- ----------------------------
Hiscox London Market $294.5 $303.9 (3.1)% (3.5)%
---------------------- ----------------------- ------------------ -------------- ----------------------------
Hiscox Re & ILS $421.0 $288.8 45.8% 45.1%
---------------------- ----------------------- ------------------ -------------- ----------------------------
Total $1,386.3 $1,256.6 10.3% 11.8%
---------------------- ----------------------- ------------------ -------------- ----------------------------
Rates
Rates continue to strengthen across all Hiscox businesses.
Hiscox London Market achieved an average rate increase across the
portfolio of 8% year-on-year, this is in addition to a 60%
cumulative rate increase since 2017 that we reported at the year
end. We expect this momentum to continue as the year progresses due
to the impact of Ukraine on the market, particularly in classes
such as terrorism.
Hiscox Re & ILS benefitted from an average rate increase of
10% across the portfolio year-on-year, driven by capacity
constraints in retrocession and North American catastrophe. This is
in addition to a cumulative rate increase of 35% since 2017, as at
the full year 2021. Given the current levels of political and
economic uncertainty and inflationary pressures, rate momentum is
expected to continue as the year progresses.
In Hiscox Retail, rates are strengthening across all regions: 5%
on average in Hiscox UK; 8% in Hiscox Europe, driven by cyber and
commercial property; and 5% in Hiscox USA, driven predominantly by
broker channel rate strengthening.
Impact of the conflict in Ukraine
The Group's direct exposure to the ongoing conflict in Ukraine
is within a small number of lines, predominantly in our London
Market and Re & ILS divisions. Hiscox London Market exited the
aviation hull insurance business in 2018 and political risk / trade
credit business in 2017, with no residual exposure - these are the
lines in which the insurance industry is facing some of the more
significant uncertainties.
While the losses from the conflict in Ukraine incurred in the
first quarter are minimal, the Group has reserved circa $40 million
(mostly IBNR) net of reinsurance to cover claims from the conflict
in Ukraine, mainly in Hiscox London Market with much smaller net
claims expected in Re & ILS. We have taken into account the
property and marine exposures in Ukraine, which represent the main
loss areas for the Group, and due to the extensive reinsurance in
place, we believe our net estimate to be robust.
The majority of the estimated net loss is expected to come from
the political violence, war and terror (PVWT) book, the business
that we write predominantly in our London Market division with some
smaller exposure in Re & ILS. PVWT insurance provides physical
damage and ensuing business interruption coverage to multi-national
companies that have fixed physicals assets, such as office
buildings or manufacturing plants, in Ukraine. The assets Hiscox
insures are spread across the country and we purchase significant
reinsurance for this portfolio on both an aggregate excess of loss
and quota share basis, thereby reducing the net exposures.
The remaining exposure is mainly in the marine portfolios.
Hiscox has a modest share of the marine hull market in Hiscox
London Market and in Hiscox Re & ILS, where we write whole
account coverage. While we are aware of a small number of vessels
trapped within the conflict zone, our average line size is small
and net exposure modest.
The impact of sanctions on the Group's overall premium income is
minimal at $4.4 million in the first quarter with the full year
impact expected to be less than $20 million. In London Market,
where we estimate a small impact on both oil and gas and space
portfolios, we are working closely with Lloyd's on sanctions
implementation.
For indirect potential exposures such as cyber, we have not yet
witnessed any material impact from the heightened geopolitical
tension. Our cyber book has seen reduced frequency and severity of
claims across all business divisions in the first quarter, the
result of earlier re-underwriting actions taken and the clamp down
on ransomware by governments across the globe. While the risk of
cyber-attacks remains elevated, as part of our robust internal risk
management process, we are gathering intelligence from a number of
sources including our response partners across the globe, in order
to ensure we make appropriately informed underwriting decisions. In
this period of heightened risk, we are adjusting both our pricing
and appetite for cyber exposure across the Group.
Claims
The first quarter has seen a number of natural catastrophes
occur around the world, including European storms, floods in
Australia and an earthquake in Japan. The total net loss reserved
for these events is within our first quarter Group natural
catastrophe budget.
Excluding the impact of the conflict in Ukraine, all three
business divisions have had a good start to the year with a better
than expected non-catastrophe loss performance, driven by rate
improvement and the remediation actions undertaken.
Whilst economic inflation continues to increase across our
markets, we have various elements of inflation loaded in our loss
ratio picks and pricing models. These reflect cost and wage
inflation through indexation of our exposures in some portfolios,
most notably in property and longer tail lines, and we continue to
secure rate increases and ensure rateable exposures, such as
payroll and customer revenues, are up-to-date in others.
For our big ticket business, we continue to update our pricing
models for social and climate-related inflation, in addition to
appropriate indexation in our rated exposures that tackles economic
inflation, and drive rate increases across the book.
In March, our Re & ILS business executed a loss portfolio
transfer (LPT) transaction buying protection for our casualty
reinsurance portfolio that is in run-off. This transaction does not
have a material impact on our capital position, but protects $116
million of Group reserves from future deterioration. This is in
addition to two other LPTs completed in 2021. In total, 18% of 2019
and prior years' Group reserves, mostly casualty longer tail in
nature, are now reinsured against future loss performance
deterioration to a 1-in-200 year return period, thus acting as an
effective mitigant from inflationary pressures on the back book.
The portfolio of business we are writing in each of our divisions
remains rate-adequate, based on our view of risk and inflation
projections.
We have continued to work closely with customers and brokers in
the UK to pay business interruption claims as quickly as possible.
As of 31 March 2022, 92% of all claims notified had received an
outcome. The business interruption claims in aggregate continue to
settle within the actuarial best estimate and we continue to hold
conservative margin above the best estimate.
Investments
The investment return for the first quarter of 2022 is a loss of
$119.4 million (2021: profit of $20.7 million), or a negative
return of 1.7% year to date (2021: positive return of 0.3%). Assets
under management at 31 March 2022 were $7.2 billion (2021: $7.7
billion).
Generationally high inflation is being experienced across most
developed markets. Central bank monetary policy stances have
hardened in response and markets have priced in some of the most
significant interest rate rises seen for decades. Short dated
government bond yields have moved up sharply, credit spreads have
widened and equity markets have suffered.
Over the first quarter of 2022 the spike in risk free rates
resulted in significant but temporary mark-to-market losses in our
short dated government and corporate bond portfolios. Hiscox
applies fair value accounting to its investment portfolio, and we
would expect losses from movements in yield curves to reverse over
the life of the bonds when held to maturity. These mark-to-market
adjustments are non-economic and non-cash in nature.
Improved income from the bond portfolio somewhat offsets other
incremental losses, resulting from increases in credit spreads
alongside some limited direct exposure to Russian and Ukrainian
credit. At the outset of the conflict we had $10 million of
investment exposure to Russia and Ukraine, which is now
significantly reduced to approximately $3 million of direct
sovereign Ukrainian exposure (0.05% of our bond portfolio). Losses
have also been incurred in our relatively small equity fund
portfolio as markets declined, while our hedge fund exposure has
held up well.
The yield on the bond portfolio has increased significantly to
2.4% as at 31 March 2022, up from 1.0% at December 2021. The short
dated nature of our portfolio means that increases in risk free
rates lead to improvements to our portfolio yield in short order
and much improved prospects for investment returns for 2023 and
beyond.
The Group maintains modest exposure to selected risk assets and
increases in volatility could provide opportunities, but otherwise
we continue to look to incrementally improve long-term risk and
capital adjusted outcomes through further diversification.
Hiscox Retail
Hiscox Retail delivered a solid performance during the first
quarter. Gross premiums written grew by 1.0% to $670.8 million
(2021: $663.9 million), or 4.0% in constant currency. The Group has
continued to carry out strategic portfolio repositioning in the US.
Excluding this, underlying business momentum in Retail is improving
with growth of 7.6% in constant currency in the first quarter,
demonstrating good progress towards the middle of the 5% to 15%
range.
With a focus on small, micro and nano businesses, our DPD
business grew gross premiums written by 8.3% during the period (or
9.6% in constant currency), despite the deliberate slow-down in new
business growth in US DPD, the division which currently constitutes
63% of Group DPD, in line with the guidance given in our 2021 full
year results. This deliberate slow-down in new business is planned
for the first six months of 2022 while we embed and optimise our
new digital trading platform, which will provide the level of
agility and scalability that is commensurate with our growth
ambitions.
Gross written premiums for the period :
Gross written Gross written Growth in Growth
premiums premiums USD in constant
to 31 March 2022 to 31 March 2021 currency
-----------------------
GBPm/EURm US$m GBPm/EURm US$m % %
------------ --------- ---------
Hiscox Retail
* Hiscox UK GBP145.1 $194.9 GBP143.3 $196.6 (0.8)% 1.3%
EUR200.0 $225.9 EUR179.0 $217.3 3.9% 11.6%
* Hiscox Europe
$236.3 $237.8 (0.7)% (0.7)%
* Hiscox USA
$13.7 $12.2 12.5% 13.6%
* Hiscox Asia
---------------------- ------------ --------- ----------- --------- ---------- -------------
Hiscox Retail
total $670.8 $663.9 1.0% 4.0%
------------------------------------ --------- ----------- --------- ---------- -------------
Hiscox UK
Hiscox UK premiums grew 1.3% on a constant currency basis, down
by 0.8% in USD to $194.9 million (2021: $196.6 million). We have
continued to see strong growth of 5.7% on a constant currency basis
in our commercial lines business and cut back our art and private
client book, where we took the decision not to renew some higher
commission business where the returns were weaker. Retention rates
are holding up well, while the business is putting through material
rate increases, including double digit rate growth in cyber and
commercial property.
In the UK broker channel we have continued to focus on improving
our service and strengthening our broker relationships. Our service
improvement plan is on track and we expect to see the benefits in
the form of increased new business flow in the second half of the
year.
UK DPD grew gross premiums written despite more subdued
marketing activity throughout 2020 and 2021. In 2022 we have
increased our marketing budget by 50%, as planned, to broaden our
reach and impact through outdoor, radio, media and digital
advertising. In March we also launched a new health and wellbeing
product on our digital platform as part of our long-term growth
strategy in this attractive market.
The non-natural catastrophe loss performance has been good; the
impact of the February storms has been better than expected and
within the loss budget for the quarter.
Hiscox Europe
Hiscox Europe delivered another strong top line performance in
the first quarter, growing gross premiums written by 11.6% on a
constant currency basis, or 3.9% in USD to $225.9 million (2021:
$217.3 million). Much of this growth has been driven through our
long-held broker relationships and a favourable pricing
environment. Across the portfolio Hiscox Europe grew rate by 8% on
top of any increases in indexation of household business. The
highest rate increases were in cyber and commercial property. The
business has grown strongly despite a significant moderation in our
cyber underwriting appetite.
All countries in the region are in growth mode, with France,
Iberia, Benelux and Ireland all growing top line at double digit
rates. Hiscox France, the second largest of our businesses in
Europe, is a particular success story in the first quarter - having
recently undergone portfolio remediation actions to improve
profitability, it is now growing at a very strong 14% on a constant
currency basis. Hiscox Germany grew gross premiums written in the
high single digits, as we exited some unprofitable schemes business
and significantly reduced our cyber exposure to larger risks.
Non-natural catastrophe loss performance in Europe is better
than expected.
The roll-out of new core technology in Germany and France is
progressing as planned. We have also commenced the digital
front-end portal programme in France which will offer digital
self-service functionality to both our direct and broker customers.
By coupling this front-end platform with our core systems, we will
be able to launch products faster and make adjustments to contracts
more efficiently.
Hiscox USA
In Hiscox USA, gross written premiums are broadly in line with
prior year at $236.3 million (2021: $237.8 million) with growth in
US DPD offset by the impact of non-renewing business as we take the
final steps in repositioning the broker channel book. Excluding
this, Hiscox USA's underlying business grew 9.2%.
US DPD grew top line by 12.5% to $122.9 million. Renewals have
been strong but new business growth has deliberately slowed down to
allow the embedding and optimisation of our new digital platform.
As we move through the second half of this year, we expect this
process to be materially complete, allowing us to start marketing
more assertively, take advantage of the expanded product footprint
and to restart onboarding a healthy pipeline of new digital
partnership opportunities.
The fundamentals of the opportunity in US DPD remain unchanged.
This channel continues to benefit from dynamic new business
formation and an ever increasing demand for digital solutions. US
DPD remains on the trajectory to achieve 15%-20% top line growth in
2022, although it is unlikely to be linear through the year with a
slower first half followed by second half improvement as we allow
an increased flow of new business. The roll-out of our new platform
is a critical part of delivering the agility and scalability needed
to achieve our significant growth aspirations in this market.
In the first three months of the year, performance in the broker
channel continued to be impacted, as expected, by the final stage
of our strategic repositioning of the book. We expect a return to
growth in the second half of the year as those exits complete by
the end of the second quarter and the rate tailwind is expected to
continue.
Hiscox Asia
DirectAsia delivered strong gross premiums written growth of
12.5% to $13.7 million (2021: $12.2 million), accelerated by new
business and renewal performance in both Singapore and Thailand on
the back of brand-building and promotional campaigns.
The Group has commenced a strategic review of its Asian
business, with no specific outcomes determined as yet. We will
provide an update on our progress when appropriate.
Hiscox London Market
Hiscox London Market's gross premiums written reduced by 3.1% to
$294.5 million (2021: $303.9 million), mainly as a result of
planned action to reduce under-priced natural catastrophe exposure
in our household, major property and commercial portfolios. This is
in line with our strategy of building balanced portfolios and
achieving more consistent returns with a focus on profitability.
This has taken 6.6 percentage points from top line growth of the
division in the first quarter, with the impact skewed towards the
start of the year due to the timing of business renewals, so we
expect the impact to be moderated as we go through the year. Net
premiums written grew 5.5% as we ceded less to reinsurers to
benefit from a strong rate environment.
Hiscox London Market achieved an average rate increase of 8%,
which continues to be accretive to our portfolio profitability.
Rate has not moved uniformly across the portfolio - classes
impacted by losses in prior years, such as cyber and marine
liability, saw significant rate hardening, while historically
profitable classes, such as K&R, terrorism and D&O saw low
or negative rate increases. Property binders continue to see double
digit growth as capacity continues to be withdrawn from the
market.
In line with our strategy, the portfolio we are writing is
balanced, rate-adequate and with healthy margins. We are growing in
the areas we see as attractive, for example, in D&O, where the
business is benefitting from over 250% of cumulative rate increases
over the last five years. We also continue to see strong growth in
US flood, an ongoing opportunity despite the National Flood
Insurance Program's rates becoming more competitive We are in the
process of enhancing our product offerings, including both the
forms and limits we provide, to allow our customers more
flexibility. In addition, further enhancements made to the
FloodPlus digital platform will increase data granularity and
further improve pricing accuracy, speed and resilience. The quality
of coverage within the Hiscox product, combined with our
distribution and underwriting capabilities, means we are well
positioned to continue to grow this book of business.
Excluding the impact of the conflict in the Ukraine, the
non-natural catastrophe loss performance is better than expected
and improving, as past course correction continues to take effect.
We continue to remediate the household and commercial portfolios
through reduction in inland convective storm, low value homes and
Florida exposures.
Hiscox Re & ILS
Hiscox Re & ILS delivered an excellent result in the first
quarter growing gross premiums written by 45.8% to $421.0 million
(2021: $288.8 million). An increase in our ILS AUM of $217.5
million has allowed us to grow in the favourable market conditions
in North American catastrophe and retrocession, thus delivering on
our strategy to grow risk-free fee income. Excluding reinstatement
premiums, gross premiums written enjoyed even stronger growth of
61.7%, as the 2021 premium figure was boosted by reinstatement
premiums relating to Winter Storm Uri.
Hiscox Re & ILS achieved an average 10% rate increase in the
first quarter. Strong rate momentum during January renewals was
underpinned by loss activity in recent years, including the
Kentucky Tornadoes that hit during the renewals period, leading to
further rate hardening across the market. The Japanese renewals at
1 April 2022 achieved a low single digit rate increase, as both the
wind and earthquake covers were significantly repriced following
loss activity in earlier years and it continues to be seen as a
high quality portfolio of business.
Net premiums written grew 20.5%. The combination of a rate
adequate and balanced net portfolio, with significant AUM to be
deployed through our ILS structure in order to generate fee income,
is expected to lead to strong and capital efficient returns.
The non-natural catastrophe loss performance was benign in the
first quarter. We have non-renewed further business across our
aggregate and risk lines, as we continue to actively minimise our
exposure to attritional losses.
Dividend and capital management
The Group remains well capitalised on both a regulatory and
ratings basis and is committed to prudent capital management in an
uncertain geo-political and economic environment. The Group's
capital strength, flexibility and liquid resources are sufficient
to pay claims, dividends and execute its growth strategy where
attractive opportunities arise. We continue to position Hiscox for
strong structural growth in Retail, and take advantage of cyclical
growth opportunities in our big-ticket business while improving
consistency of returns.
ENDS
A conference call for investors and analysts will be held at
9:00 BST on Thursday, 5 May 2022.
Participant dial-in numbers:
United Kingdom (Local): 020 3936 2999
All other locations: +44 20 3936 2999
Participant Access Code: 380341
For further information
Investors and analysts
Yana O'Sullivan, Group Head of Investor Relations, London +44
(0)20 3321 5598
Marc Wetherhill, Group Company Secretary, Bermuda +1 441 278
8300
Media
Kylie O'Connor, Director of Communications, London +44 (0)20
7448 6656
Tom Burns, Brunswick +44 (0)20 7404 5959
Simone Selzer, Brunswick +44 (0)20 7404 5959
Notes to editors
About The Hiscox Group
Hiscox is a global specialist insurer, headquartered in Bermuda
and listed on the London Stock Exchange (LSE:HSX). Our ambition is
to be a respected specialist insurer with a diverse portfolio by
product and geography. We believe that building balance between
catastrophe-exposed business and less volatile local specialty
business gives us opportunities for profitable growth throughout
the insurance cycle.
The Hiscox Group employs over 3,000 people in 14 countries, and
has customers worldwide. Through the retail businesses in the UK,
Europe, Asia and the USA, we offer a range of specialist insurance
for professionals and business customers as well as homeowners.
Internationally traded, bigger ticket business and reinsurance is
underwritten through Hiscox London Market and Hiscox Re &
ILS.
Our values define our business, with a focus on people, courage,
ownership and integrity. We pride ourselves on being true to our
word and our award-winning claims service is testament to that. For
more information, visit www.hiscoxgroup.com .
[1] Adjusted for the reduction in gross premiums written in the
US broker channel business over the course of 2021 and into 2022 to
strategically reshape the portfolio towards smaller business
customers with revenues below $100 million. This reshaping is
expected to conclude in the second quarter of 2022.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
RNS may use your IP address to confirm compliance with the terms
and conditions, to analyse how you engage with the information
contained in this communication, and to share such analysis on an
anonymised basis with others as part of our commercial services.
For further information about how RNS and the London Stock Exchange
use the personal data you provide us, please see our Privacy
Policy.
END
TSTEAPSLEDFAEFA
(END) Dow Jones Newswires
May 05, 2022 02:01 ET (06:01 GMT)
Hiscox (LSE:HSX)
Historical Stock Chart
From Apr 2024 to May 2024
Hiscox (LSE:HSX)
Historical Stock Chart
From May 2023 to May 2024