TIDMHSX
RNS Number : 9897E
Hiscox Ltd
02 November 2022
Hiscox Ltd trading statement
Hamilton, Bermuda (2 November 2022) - Hiscox Ltd (LSE:HSX), the
international specialist insurer, today issues its trading
statement for the first nine months of the year to 30 September
2022 .
Highlights:
-- Group gross premiums written up 6.3% to $3,680.2 million
(2021: $3,462.9 million), or 9.3% in constant currency, as strong
rate momentum continues across all business segments. Premium
growth remains ahead of our claims inflation assumptions.
-- Hiscox Retail gross premiums written up 6.1% to $1,768.0
million (2021: $1,756.4 million), with the Retail go-forward
portfolio [1] up 7.9%, both in constant currency. This is driven by
excellent growth in Europe, a resilient performance in the UK and
improved USA growth from half year levels, as the US broker
business returned to growth in the third quarter.
-- US Digital Partnerships and Direct (DPD) gross premiums
written increased 9.8%, and are on track to grow in the middle of
the 5% to 15% range in 2022, before accelerating to in excess of
15% in 2023. As previously guided, the slower growth in the
short-term is due to our migration to the next-generation platform,
which is progressing well and in line with expectations.
-- Hiscox Retail combined ratio remains on track to be in the 90% to 95% range in 2023.
-- Hiscox London Market continues to benefit from aggregate rate
increases across the portfolio. A 6.1% reduction in gross premiums
written to $845.3 million (2021: $900.0 million) is primarily due
to a deliberate and ongoing reduction in under-priced natural
catastrophe exposed risk in household and commercial binders.
-- Hiscox Re & ILS gross premiums written of $1,066.9
million (2021: $806.5 million) grew by 32.3% crossing a $1 billion
milestone, as we benefitted from further hardening market
conditions. The rating outlook for January 2023 renewals is
excellent.
-- Investment result loss of $293.9 million (2021: profit of
$62.7 million), or a negative return of 4.2% year to date (2021:
positive return of 0.9%), primarily due to unrealised mark to
market losses in our bond portfolio which are expected to unwind as
the bonds mature.
-- $135 million [2] net of reinsurance reserved for Hurricane
Ian, well within our modelled range, based on an insured market
loss of $55 billion, reflecting the continued reduction in
under-priced natural catastrophe exposed risk. No change to the
previously announced loss estimates for Ukraine.
Aki Hussain, Group Chief Executive Officer, commented:
"The Group has performed well in a complex underwriting
environment. Our Retail business is on track, with platform
migration going well and we look forward to an acceleration of
growth in 2023. The performance of our big-ticket businesses
remains robust after the impact of Hurricane Ian, and improving
conditions are presenting new opportunities."
Gross premiums written for the period :
Gross premiums written Gross Growth in USD Growth in constant currency
to 30 September 2022 premiums written
to 30 September 2021
---------------------- ----------------------- ---------------------- -------------- ----------------------------
US$m US$m % %
---------------------- ----------------------- ---------------------- -------------- ----------------------------
Hiscox Retail 1,768.0 1,756.4 0.7% 6.1%
---------------------- ----------------------- ---------------------- -------------- ----------------------------
Hiscox London Market 845.3 900.0 (6.1%) (6.0%)
---------------------- ----------------------- ---------------------- -------------- ----------------------------
Hiscox Re & ILS 1,066.9 806.5 32.3% 33.4%
---------------------- ----------------------- ---------------------- -------------- ----------------------------
Total 3,680.2 3,462.9 6.3% 9.3%
---------------------- ----------------------- ---------------------- -------------- ----------------------------
Rates
Rate momentum continues to be favourable across all Hiscox
businesses, although the degree of rate strengthening varies across
business units and lines of business.
Of the two big-ticket businesses, Hiscox Re & ILS is
benefitting from stronger rate momentum with an average risk
adjusted rate increase of 12.5% in the period. Since 2017 this
business has achieved cumulative rate increases of 52%. Rates are
particularly strong in retrocession, North American property
catastrophe and cyber portfolios, where traditional reinsurers and
alternative capital reduced capacity and cedents looked to purchase
more cover in an inflationary environment. July renewals were
strong with North American renewals attracting a 13% rate increase
on average. We have also seen material rate improvements in the
Australian programmes following the severe flooding that occurred
in February. Hurricane Ian's landfall in September is expected to
further reinforce the hardening rate momentum. We will remain
disciplined in our approach to drive rate adequacy, whilst being
ready to deploy more of our own capital in the event of third party
capital withdrawal and materially elevated rates.
Hiscox London Market benefited from an average rate increase of
7%, ahead of expectations. Since 2017 this business has achieved
cumulative rate increases of 72%. Hardening market conditions
persisted in most lines, with cyber continuing to lead the way.
D&O and general liability rates have been softening, although
remain attractively priced, having achieved cumulative rate
increases of over 250% and 130% respectively over the last five
years. Terrorism rates, terms, and conditions are starting to
exhibit positive rating momentum as a result of the market
absorbing Ukraine-related losses. While household and commercial
property achieved 10% rate growth in the period, pricing is still
not sufficient to achieve our target returns, consequently we will
continue to reduce our catastrophe exposures in this area. This
decision reflects our constant portfolio review and appraisal to
ensure we are allocating capital in the most beneficial lines of
business.
In Hiscox Retail, the Group's less cyclical business, rates are
rising across all regions. The strongest rate momentum is in Hiscox
Europe with average rate increases of 8%, largely driven by cyber,
commercial property and traditional professional indemnity. In
Hiscox UK rate is also ahead of expectation at 5%, with strong rate
growth in employer liability, technology and media. In Hiscox USA
rates increased 7% on average, driven by both the broker and DPD
channels.
Claims
Hiscox's natural catastrophe losses in the quarter are
consistent with expectations given the estimates of insured losses
and there are no changes to previously announced loss estimates for
Ukraine. Pricing trends remain positive and ahead of our claims
inflation assumptions in most lines.
After two benign months, September brought several weather
events that left a trail of destruction in their wake and our
thoughts are with all of those affected. Hurricane Ian, the largest
event, made landfall on the west coast of Florida on 28 September
and in South Carolina two days later. The Group reserved $135
million net of reinsurance including reinstatement premiums for
Hurricane Ian. This is consistent with our expectations, based on
an insured market loss of $55 billion. The majority of our exposure
is in big-ticket lines: $40 million net in London Market and $90
million net in Re & ILS. Estimated net losses for the Retail
portfolio are modest at $5 million. Typhoon Nanmadol in the
northwest Pacific impacting Japan and Hurricane Fiona, which made
landfall in the Caribbean and Canada, had no material impact on the
Group performance, with these losses expected to remain largely
below the attachment points of our reinsurance contracts.
The conflict in Ukraine sadly continues to be a live event,
Hiscox's estimated ultimate loss from all risks in Ukraine and
Russia remains unchanged at $48 million net of reinsurance [3] .
$34 million of that is attributable to Hiscox London Market, where
currently the majority of reserves comprise incurred but not
reported (IBNR) losses. Hiscox London Market exited the aviation
hull insurance business in 2018 and political risk/trade credit
business in 2017.
In cyber, we are continuing to see a reduction in the ransomware
claims frequency in the majority of our markets. Markets are
starting to address the systemic aggregation in cyber through
endorsements sub-limiting catastrophe events. While Hiscox remains
a cautious underwriter in large cyber, our business continues to
innovate in product development for our small commercial
clients.
Investments
The investment result for the first nine months of 2022 was a
loss of $293.9 million (2021: profit of $62.7 million), or a
negative return of 4.2% year to date (2021: positive return of
0.9%), mostly comprising unrealised losses on our bond portfolio
which are expected to unwind as the bonds mature.
Central banks tightened policy aggressively during the third
quarter, as inflation proved more persistent than expected. Bond
markets reacted by pricing in further tightening, with short dated
government bond yields taking another step higher. These changes in
risk free rates contributed the majority of the mark to market
losses on our bond portfolios, with a smaller contribution from
rising credit spreads.
The reinvestment yield on the bond portfolio increased to 4.8%
as at 30 September 2022, up from 3.4% at the end of June 2022 and
1.0% at the end of 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.
Following an initial recovery early in the third quarter, global
equity markets sold off, reaching new lows for the year, down over
25%. The Group maintains modest exposure to equity assets, which
were marked down, along with other risk asset exposures which were
less impacted. We have not added to these exposures, but the
continued sell off could provide opportunities. We continue to look
to improve long-term risk and capital adjusted outcomes through
further diversification. Assets under management as at 30 September
2022 was $7.2 billion (31 December 2021: $7.3 billion).
Hiscox Retail
Hiscox Retail gross premiums written increased by 0.7% to
$1,768.0 million (2021: $1,756.4 million), or 6.1% in constant
currency. This reflects excellent growth in Europe, a resilient
performance in the UK and an improvement in the USA's growth from
the half year levels, as the planned programme of repositioning the
book concluded in May and the business switched its focus to growth
with a narrower appetite. Excluding this corrective action, the
go-forward Retail business grew 7.9% in constant currency. Most
pleasing is the growth in our Retail commercial business, up 9.9%
in constant currency on a go-forward basis.
US DPD delivered 9.8% growth on the prior period as the business
continues to make good progress in platform migration and remains
on track to deliver the previously communicated guidance of gross
premiums written growth in the middle of the 5% to 15% range in
2022, before accelerating to in excess of 15% in 2023.
Hiscox Retail combined ratio also remains on track to return to
the 90% to 95% range in 2023, despite the challenging
macro-economic environment.
Gross premiums written for the period :
Gross premiums Gross premiums Growth Growth Growth
written written in USD in constant in constant
to 30 September to 30 September currency currency
2022 2021 adjusting
for US
course
correction
-----------------------
GBPm/EURm US$m GBPm/EURm US$m % % %
------------ --------- ---------
Hiscox Retail
* Hiscox UK GBP467.3 $593.6 GBP448.4 $619.0 (4.1%) 4.0%
EUR409.0 $444.1 EUR355.9 $428.2 3.7% 14.8%
* Hiscox Europe
* Hiscox USA
$691.3 $674.1 2.6% 2.6%
* Hiscox Asia $39.0 $35.1 11.1% 12.9% 7.1%
------------------------------------ --------- ----------- --------- --------- ------------- -------------
Hiscox Retail
total $1,768.0 $1,756.4 0.7% 6.1% 7.9%
------------------------------------ --------- ----------- --------- --------- ------------- -------------
Hiscox USA
Hiscox USA's gross premiums written grew 2.6% to $691.3 million
(2021: $674.1 million), up from 1.2% at the half year, as the
impact of course correction actions reduced and the US broker
channel returned to growth in the third quarter compared to the
same period last year. Adjusting for the US broker course
correction, the US go-forward business was up 7.1%
year-on-year.
The US broker business grew above our expectations in the third
quarter, mainly as a result of higher than expected rate increases
and strong renewal retention. The business is being repositioned
for new business growth with a bolstered business development team.
Sarah Bourdeau joined Hiscox USA as Head of Distribution and became
a member of the US Leadership Team in October. Sarah has broad
experience across digital and traditional channels in mainstream
brands such as Main Street America Group, Travelers and CNA. She
will lead the team to drive the overall opportunity and continue to
build a best-in-class sales and trading operation.
The platform migration in the US DPD business is progressing
well and as planned. All direct new business customers have been
live on the new platform since June and we are seeing some early
positive signs of success. Conversion rates on the new system have
bounced back, which is very encouraging given that optimisation
activities are only just starting. There are also early signs that
the new customer journey is driving a higher number of policies per
customer which will allow us, over time, to increase the share of
wallet of our customers. Early performance indicators also point to
faster quote turnaround time and higher availability than on the
legacy systems.
Migration of partners commenced in September and we remain on
track to substantially complete this process by the end of the
year.
As a result of platform migration, the US DPD business grew 9.8%
in the first nine months of the year and is on track to deliver
growth, as previously guided, at the midpoint of our stated 5% to
15% Retail range in 2022. The opportunity for our US DPD business
remains strong, the economic activity continues to be robust and
the market is large, fragmented, and will continue to grow as the
digitisation of small business insurance gains momentum. In the
build-up to completing our re-platforming, targeted marketing
campaigns have resumed in the third quarter to deliver a higher
growth rate in excess of 15% in 2023.
Hiscox UK
Hiscox UK premiums grew 4.0% on a constant currency basis, but
reduced by 4.1% in US Dollars to $593.6 million (2021: $619.0
million) due to a sharp depreciation of the British Pound against
the US Dollar. The commercial lines business continues to
demonstrate robust growth at 9.1% in constant currency, underpinned
by rate tailwinds and strong retention. The art and private client
business is now stabilised and showing improving trends and we
expect it to return to growth in 2023.
We continue to drive several strategic initiatives to improve
our core capabilities in the UK, most notably in e-trading for
brokers, where we are developing a number of agile solutions
tailored to the needs of our key relationships.
The majority of marketing spend in recent years has been focused
on customer acquisition, from 2023 we will see a renewed investment
in the Hiscox brand combined with acquisition.
Jon Dye, our new UK Chief Executive Officer, joined the business
in September. Jon held a number of senior roles within the
industry, most recently as CEO of Allianz UK for eight years. He
also served as Chair of the ABI between 2019 and 2021. Jon brings
deep retail experience to our UK business and has already generated
a lot of positive momentum.
Hiscox Europe
Hiscox Europe is the strongest growing business segment in the
Hiscox Retail portfolio. Gross premiums written are up 14.8% in
constant currency to $444.1 million (2021: $428.2 million), or 3.7%
in US Dollars, and we expect it to surpass the EUR500 million
milestone by the end of the year. Our commercial business growth in
Europe is particularly strong, up 17.8% in constant currency.
All five markets in the region are growing gross premiums
written at double digit rates. Hiscox France, the second largest of
our businesses in Europe, is a particular success story with growth
momentum accelerating through the year to 15.4% on a constant
currency basis and retention rates improving steadily. Hiscox
Germany saw 10.1% growth in gross premiums written, with both
broker and DPD channels growing at double digit rates. Work to
reshape the book away from larger cyber risks is now mostly
complete and the launch of the small cyber modular product in
September has positioned the business well for the key January
renewal season.
The roll-out of new core technology in Germany and France
remains on track. Hiscox Europe has also commenced its front-end
digital programme, starting with France's broker business, where
the portal is now live. Work is underway to move France, Germany
and Spain's direct businesses onto the platform during the first
half of 2023.
Hiscox Asia
Our operations in Asia, DirectAsia, saw gross premiums written
grow 12.9% in constant currency to $39.0 million (2021: $35.1
million). Singapore performed particularly well, underpinned by
excellent new business growth and strong renewals, as the economy
emerged from the pandemic and international travel resumed.
Thailand generated strong growth in its partnership business, up
20% in constant currency.
Hiscox London Market
Focusing on sustained profitability we grew in selected lines,
achieving double digit growth in public D&O, which is
attractively priced after over 250% cumulative rate increases over
the last five years, and in marine and energy liability, where rate
strengthened 18% year-on-year following several large industry
losses within the International Group of P&I Clubs placement
last year.
In aggregate Hiscox London Market's gross premiums written
reduced by 6.1% to $845.3 million (2021: $900.0 million). This is
mainly due to planned re-underwriting actions to further reduce
under-priced exposure in the household and commercial binder books
and the impact of Russian sanctions, which together have taken 5.2
percentage points from the division's top-line growth. In London
Market property, we concentrate on deploying aggregate where we
retain control, either on the open market side in direct and
facultative (D&F) or via our HiscoxPlus platform which combines
data and our unique pricing algorithm, with seamless digital
trading capabilities to access the excess and surplus (E&S)
property market. HiscoxPlus provides more intelligence to drive
superior risk selection, which is increasingly becoming a
requirement to win in this competitive space. We also innovate in
other lines of business, for example, in general liability, we are
exploring the opportunity surrounding autonomous and electric
vehicles, a fast evolving industry.
Our third quarter performance has been impacted by an estimated
$40 million net loss from Hurricane Ian, a much lower cost than it
would have been if we had not reduced our exposure to under-priced
Florida business in the preceding two years. The multi-year
underwriting actions alongside better than expected non-catastrophe
claims experience results in a robust outlook for the full
year.
Hiscox Re & ILS
Hiscox Re & ILS gross written premium increased by 32.3% to
$1,066.9 million (2021: $806.5 million), as we took advantage of
further hardening market conditions. Excluding reinstatement
premiums, top line growth was strong at 35.6%.
The dislocated reinsurance market experienced in Florida at the
June renewals meant the business achieved a 34% rate increase,
although the premium increase was smaller, as we strategically
moved up on program layers and reduced the number of cedants to
focus on selected customers.
Net flows into the ILS funds have been broadly stable in the
quarter, following over $500m of net inflows during the first half.
Future ILS flows are somewhat more uncertain as the attractions of
materially increased rates are counterbalanced by investor
sentiment impacted by Hurricane Ian losses and investors
rebalancing portfolios. Hiscox Re & ILS generated over $40
million of fee income from ILS and quota share partners year to
date.
The underwriting result in Hiscox Re & ILS has been affected
by several natural catastrophe losses throughout the year, most
notably Hurricane Ian, which resulted in an estimated net loss of
$90 million for the division. Australian flood losses earlier in
the year were broadly offset by favourable prior year
developments.
The reinsurance book is largely written for 2022 so our
attention now turns to the upcoming January 2023 renewals. We are
expecting further and potentially material rate hardening as
capital withdrawal combined with elevated demand, creates an
exciting opportunity for the reinsurance market. In the event of
material rate hardening we would expect to deploy more of our own
capital and increase retained premiums.
Capital management
In the third quarter the Group issued GBP250 million of
five-year unsubordinated unsecured notes dated 22nd September 2022
[4] . The transaction was in excess of three times oversubscribed,
demonstrating strong sentiment and market confidence in the Group.
The issuance of the notes coincides with upcoming redemption of
GBP275 million unsubordinated debt in December 2022 [5] . Funds
raised will go towards the redemption of the expiring note,
allowing the Group to continue to conduct its general corporate
purposes whilst remaining appropriately leveraged.
The recent capital markets volatility has had a broadly neutral
impact on the Group's solvency position. The Group remains strongly
capitalised, with the flexibility to maintain a prudent balance
sheet and invest in structural growth opportunities in Retail as
well as favourable market conditions in our big ticket businesses,
particularly in our reinsurance division.
ENDS
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 in the first
half of 2022 to strategically reshape the portfolio towards smaller
business customers with revenues below $100 million.
[2] Includes margin over best estimate and the impact of
reinstatement premiums.
[3] Including impact of reinstatement premiums.
[4] Fixed rate of 6.00 per cent paid annually in arrears.
[5] Fixed rate of 2.00 per cent paid annually in arrears.
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