Hiscox soars to record pre-tax profit

Bermuda-based re/insurer Hiscox more than doubled its before tax profit to a record $625.9 million in 2023, the company said today, crediting strong underwriting performance and a turnaround in investment returns for the result. 

The company said its decision to deploy capital to its Bermuda Re & ILS subsidiary had paid off, as its pre-tax underwriting profit almost quintupled. 

The group’s pre-tax annual profit increased from $275.6 million in 2022. Its insurance contract written premiums rose from $4.35 billion to $4.59 billion and its investment service result jumped from $360.9 million to $492.3 million with its discounted combined ratio improving to 85.5% from 88.9% in 2022. 

Investments soared to $384 million from a loss of $187.3 million as returns from bonds improved while the company recorded a tax credit of $86.1 million, driven largely by a credit of $150 million set aside for the upcoming Bermuda Corporate Income Tax.

As a result, the company recorded a final profit available to shareholders of $731 million compared to $163 million in 2022. 

“I am pleased to announce the Group has delivered a record profit before tax of $625.9 million,” said chief executive officer Aki Hussain. “Group return on equity of 21.8% is the highest the business has delivered in seven years. These record profits are underpinned by continued growth in each of our business segments, as we execute our strategy and capture both cyclical and structural growth opportunities across our portfolio.”

Hussain said: “In 2023, Hiscox capitalised on some of the best property pricing conditions in decades and deployed significant capital in both our London Market and Re & ILS businesses, alongside investing in continuing growth in retail.”

Hussain said Hiscox expects “favourable market conditions in many of our big-ticket lines of business to continue into 2024, most recently evidenced by the strong January renewals”. 

He added: “In addition, the structural growth opportunity in Retail remains immensely attractive, and we increased our investment in marketing by 29% in 2023 to support growth into 2024. We will continue to allocate more capital to support growth across all of these opportunities in line with our strategy.”

Hussain said the company had strengthened reserves across the group and although a significant part of the strengthening related to the US broker business Hiscox exited in 2021. 

With regard to Hiscox Re & ILS, the company said the buoyant natural catastrophe bond market in 2023 meant the company took the opportunity to diversify its outwards reinsurance programme by issuing our own $125 million natural catastrophe bond in December 2023, which provides multi-year protection against North American named storms and earthquakes. The issue was upsized due to strong demand and priced attractively. 

“In Hiscox Re & ILS, we launched a new catastrophe bond fund facility to complement our ILS offering, in time for the January renewals,” the company added. 

Hiscox Re & ILS Hiscox Re & ILS recorded net insurance contract written premium (NICWP) growth of 23.2%, increasing to $449.6 million from $365 million as the business deployed additional capital into the favourable hard market. 

“ICWP grew more modestly by 1.9% to $986.3 million (2022: $967.6 million) as less ILS capital was deployed throughout this year, reflecting broader ILS fund market conditions,” the company said. 

“Hiscox Re & ILS benefitted from an average rate increase of 31% on a risk-adjusted basis, and cumulative rate increases now stand at 90% since 2018. 

“Rate growth is beginning to plateau in the US property catastrophe market, having achieved significant improvements in terms and conditions during 2023. The international property catastrophe book continues to see a broad rate hardening. 

‘Retrocession rates saw the greatest increases in 2023, up 42% on prior year, and are now starting to soften slightly as more capacity returns to the market. Despite this, we believe that rates remain attractive.”

“Hiscox Re & ILS delivered an excellent undiscounted combined ratio of 69.8% (2022: 85.6%) and a record profit before tax of $221.4 million (2022: $46.9 million) in an active year for natural catastrophe losses,” he said. “The business continued the trend of recent years of reducing exposure to secondary perils by materially reducing exposure to aggregate programmes.”

The company said Hiscox ILS funds delivered a record performance with assets under management of $1.8 billion (2022: $1.9bn) as at 31 December 2023. These decreased to $1.6 billion on 1 January 2024 after a planned capital return of $270 million. 

“In total, the business raised $140 million of new capital ahead of the January renewals, including capital from new ILS investors and a newly-launched side-car. The pipeline of further opportunities remains strong. 

“The impact of 2023 ILS net outflows was offset through a combination of increasing Hiscox’s own allocation of capital and by a significant increase in ceded quota share capacity. As a result, gross income was maintained, net income increased materially and the excellent underwriting result has not only generated a 69.8% undiscounted combined ratio, but a near doubling of fee income year on year.”

The company said fee income rose from $51.1 million to $101.7 million as substantial profit commissions were generated.

Hiscox said it had recognised a deferred tax asset of $150 million in relation to the Bermuda corporate income tax legislation 

It said: “As a response to the Pillar Two reform, Bermuda has introduced a corporate income tax  which was substantively enacted at the balance sheet date, and will apply at a rate of 15% to profits of certain Bermuda constituent entities with effect from 1 January 2025. 

“The Group expects to be subject to Bermuda CIT. The proportion of the Group’s profits arising in Bermuda is therefore not expected to be subject to Pillar Two top-up tax and is not included in the estimated impact. 

“A deferred tax asset of $150.0m in relation to the Economic Transition Adjustment (ETA) required by this legislation has been recognised at the balance sheet date. The ETA requires each taxable entity, which would also have been a taxpayer had the CIT been in effect at 30 September 2023, to adjust the calculation of taxable income on first entering the scope of tax, by replacing the carrying value of the certain assets and liabilities on the balance sheet at 30 September 2023 with the corresponding estimated fair value, creating temporary differences.”

Hussain said Hiscox’s London market division was collaborating with Google Cloud to create the first AI-enhanced lead underwriting model in the Lloyd’s market. 

“The proof of concept was undertaken in Hiscox’s terrorism line of business, although the principles will apply to other lines of business within and beyond big-ticket insurance,” he said. “The collaboration combines our recently built in-house technology platform called Hiscox AI Laboratories (Hailo) with Google Cloud’s generative AI technology to automate lead algorithmic underwriting from submission to quote. 

“A manual quoting process that used to take up to three days has been shortened to just three minutes when using AI tools, freeing up time for our underwriters to focus on higher-value tasks. We are very excited about the potential applications of this new technology more widely across our business.” 

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