Hiscox Ltd Have done what they set out to do in the first quarter

Hiscox Ltd (LON:HSX), the international specialist insurer, today issued its trading statement for the first three months of the year to 31 March 2019.

Gross written premiums grew by 3.3% in constant currency to $1,164.7 million (2018: $1,157.7 million). Hiscox Retail continued its disciplined approach, while Hiscox London Market and Hiscox Re & ILS have been opportunistic, growing where rates are improving most.

Bronek Masojada, Chief Executive Officer, commented: “We have done what we said we would do in the first quarter. In retail we continue to pull back in US private company D&O, where conditions are challenging, and the UK business is adapting to a new IT system which will help us capture the long-term opportunity. We expect growth for our retail businesses to trend towards the mid-point of our 5-15% target range in the second half.

“In the London Market and in reinsurance, where conditions are improving, we are growing in the right areas and maintaining our focus on writing profitable business.”

Gross Written Premiums for the period:

Rates

In Hiscox London Market, rates have increased across the portfolio by approximately 4% year to date, as the cumulative impact of two consecutive years of heavy market losses and the Lloyd’s ‘Decile 10′ directive continues to drive rate improvement in the majority of classes. Cargo, marine hull and US public company directors and officers’ (D&O) have seen the most significant rate rises, all up double digits, while pricing in property lines continues to firm. Pricing in cyber and terrorism remains competitive.

In reinsurance, where capacity is abundant, rate improvement has been more incremental. For Hiscox Re & ILS, rates are up by approximately 2% across the portfolio, with the retrocession and risk excess accounts achieving the highest increases. Rates in US catastrophe-exposed business are up low-single-digits, while pressure continues in the international book where rates are down slightly in aggregate, despite increases of more than 25% on loss-affected Japanese business at the April renewals.

In our retail businesses pricing is broadly flat, with claims trends in the market driving increases in UK home insurance. Rates in cyber are under pressure and we are being cautious in our approach.

Claims

Hiscox Retail has seen a more normal claims experience compared to a very benign start to 2018. Hiscox USA continued to see claims in the D&O book where we are actively reducing.

Hiscox London Market has been impacted by a higher frequency of losses in the property book, including a single large household loss.

In line with the market, Hiscox Re & ILS has seen some deterioration on Typhoon Jebi and the risk excess book, where notifications continue to come in later than expected. As a result, our aggregate reserve development, whilst remaining positive, is expected to be at the lower end of the normal range.

Investments

The investment return for the first three months of 2019 was $84.2 million (2018: -$13.5 million), or 5.3% on an annualised basis (2018: -0.2%). Assets under management at 31 March 2018 were $6,334 million (2018: $6,586 million).

Following a rocky end to 2018 caused by concerns over slowing global growth, financial markets have rebounded so far in 2019. Equity markets have recorded double-digit gains in some regions, and most bond markets have made positive returns. As a result, our year to date investment return is already well ahead of our position at the end of last year.

While our investment strategy remains broadly unchanged, we have benefited from our decision to increase exposure to short-duration corporate credit as spreads widened towards the end of 2018. However, with economic and political uncertainty an on-going feature in many parts of the world, it appears likely that bouts of market volatility will continue throughout the year, and we will remain conservatively positioned.

*2018 gross written premiums for Hiscox UK (formerly Hiscox UK & Ireland) and Hiscox Europe have been re-stated to reflect the impact of business transferred from Hiscox UK to Hiscox Europe due to structural changes made in readiness for Brexit.
**2019 gross written premiums for Hiscox Asia include the recognition of premium controlled by DirectAsia Thailand which is written via an agency relationship into Hiscox Insurance Company (Bermuda). The table above presents Hiscox Asia on a normalised basis for management purposes.

Hiscox UK

Hiscox UK’s gross written premiums grew by 3.2% in constant currency to $178.9 million (2018: $184.9 million), with growth subdued as we continue to adapt to a new IT system.

In the broker channel, we have successfully piloted a new operating model which is now being rolled out across the UK. We are on track to commence the transition of our high net worth business onto the new system in the second half of the year as planned, and service standards are expected to return to normal once these changes are fully embedded. We expect growth to remain subdued until these changes take full effect.

Our direct-to-consumer business has continued to deliver strong growth, however we are seeing increased competition in Direct Commercial. Our strong brand is key to differentiating us in this space and we will continue to invest significantly in marketing to boost our growth.

In March we launched our new CyberClear product in London, with over 350 brokers and partners in attendance. Cyber insurance is a key area of growth in the UK and CyberClear offers market-leading protection for our customers against a wide range of threats.

Bob Thaker joined as CEO during the quarter, returning from Asia where he led DirectAsia since 2015. Bob’s background in strategy and experience running a fast-growing digital insurance business will be invaluable as we continue to scale our direct platform in the UK.

Hiscox Europe

Hiscox Europe had a strong start to the year, growing gross written premiums by 16.8% in constant currency to $154.9 million (2018: $143.5 million).

Germany and Spain continue to be the standout performers, delivering strong growth, especially in commercial lines. Benelux has delivered above-budget growth so far this year and France continues to improve, achieving its highest retention rates in five years for the first quarter.

In January, Hiscox Ireland and a number of European underwriting partnerships transferred from Hiscox UK to Hiscox Europe as part of the structural changes made in readiness for Brexit. We have increased our local presence in Dublin, with the Ireland business now successfully integrated into our European operation and performing well.

We will be opening two new offices this year in Berlin and Stuttgart, as we continue to see strong demand and market recognition for our products and services in Germany. Hiscox Germany was awarded best in the industry for its claims management (in cyber, D&O and professional indemnity) by a prominent German insurance publication. We have also been recognised as one of the best German employers in the Great Place to Work® 101-250 employee category.

Hiscox USA

Hiscox USA grew gross written premiums by 6.1% to $212.6 million (2018: $200.3 million), as we deliver on our plan to shrink our D&O book in response to an increased frequency of claims and rate inadequacy in the market. Our intention is to reduce the account by more than half this year and we are on track to achieve this, which will improve profitability.

Our direct and partnerships division continues to deliver strong growth, with partnerships performing particularly well in the first quarter. Sustained investment in the brand is driving improved customer acquisition and the business will benefit further from the new policy administration system being implemented later this year. In the broker channel there has been strong growth in the professions book, as well as casualty, where rates are attractive.

We have launched our first fully-integrated media campaign in the US, featuring our first ever US TV advertisements, alongside partnerships with well-known media outlets and brands including National Public Radio, The Wall Street Journal and Major League Baseball. The ‘Barcode’ campaign is the latest in our ‘Encourage Courage’ brand series aimed at US small businesses.

We expect growth for Hiscox USA to trend towards the mid-point of our 5-15% target range for the retail businesses towards the end of the year.

Hiscox Special Risks

Gross written premiums for Hiscox Special Risks were down by 1.8% in constant currency to $38.1 million (2018: $39.7 million), however this figure was impacted by the recognition of multi-year policies. On an underlying basis the top line was flat.

Conditions in our core kidnap and ransom market, where we have a dominant position, remain challenging. We have renewed our focus on our strategic underwriting partnerships worldwide and we are seeing good progress.

We have seen an uptick in interest for our Security Incident Response (SIR) product, which has delivered good growth to start the year. We will continue to ramp up our investment in marketing and distribution, having recently expanded the business development team in the US.

Hiscox Asia

Hiscox Asia grew gross written premiums by 39.0% in constant currency to $8.8 million (2018: $6.4 million).

In Singapore we have had consecutive record-breaking months for car and motorbike insurance sales driven by the success of new partnerships. The business is also benefiting from a recent brand refresh which provides a stronger and more differentiated look and feel in display advertising on taxis and buses.

Thailand also achieved record sales during the quarter, with a focus on digital marketing delivering results.

Hiscox London Market

Gross written premiums in our London Market business grew by 5.3% in constant currency to $228.6 million (2018: $219.8 million) as rate improvement continues in the majority of classes.

The market is still digesting two years of heavy losses in addition to the Lloyd’s ‘Decile 10’ directive, and we are taking advantage of opportunities as they arise. Growth has been most significant in marine liability, product recall, cyber and general liability, where we have launched two innovative consortia. One offers protection against faults in advanced and emerging technology or hard-to-insure products; the other provides access to meaningful capacity for large corporations. The response from brokers has been overwhelmingly positive.

We are seeing substantial dislocation in the US public company D&O market, which is causing rates to rise. This market has different characteristics to the US private company market D&O written in Hiscox USA, and if conditions improve sufficiently, we will look to grow as the year progresses.

Hiscox Re & ILS

In Hiscox Re & ILS, gross written premiums decreased by 4.6% in constant currency to $342.8 million (2018: $363.1 million), with the main driver being a reduction of capital available to be deployed by the ILS funds following the significant losses of last year. Excluding the impact of ILS, premiums grew by 3%.

Our teams in London and Bermuda have done well to capitalise on rate improvement in property catastrophe reinsurance and retrocession, with the latter account achieving particularly strong growth. At the April renewals we secured double-digit increases in Japanese loss-affected business, but rates elsewhere in the international book were down.

An abundance of capacity in reinsurance, from traditional and alternative sources, continues to apply downward pressure on rate momentum. However, we are optimistic that sustainable rate rises will continue for the rest of the year as the market recognises significant deterioration on prior year losses and recent loss experience that requires an updated view of risk.

Due to heavy losses in the risk excess and the wildfire market over the last two years, we have taken action to adjust our view of risk, increase rates and reduce exposure on some business. Loss-affected business in Florida is set to renew mid-year and although we expect significant rate improvement, we are not yet certain if the increases will adequately reflect the cost of the risk.

Performance of our ILS funds through 2017 and 2018 was in line with expectations and we are pleased that our investors remain committed. Since the launch of the funds in 2014, they have generated positive net returns for investors. ILS assets under management remain in excess of $1.5 billion, including capital deployed into Latitude, our new fund which commenced writing business in January. Latitude brings together the underwriting expertise of Hiscox London Market and Hiscox Re & ILS to give investors access to a diversified portfolio of insurance and reinsurance risks.