6 November 2013ILS

Rate environment encouraging retail growth

Significant rate reductions at the mid-year renewals may signal a tough January for reinsurers, and will likely encourage global multi-line players to consider insurance lines more closely.

That is the news from Jeremy Pinchin, CEO of Hiscox Re, who told Bermuda:Re that recent changes in the focus of global re/insurers reflected a strategy Hiscox had pursed for the past 20 years, aimed at “building a more stable insurance business alongside its more volatile insurance and reinsurance business.”

Pinchin said that with the building out of retail operations in the UK, Europe and the US, alongside more stable “big ticket insurance lines”, Hiscox has found itself well positioned to weather the current cycle, which sees reinsurers under increasing pressure, in the face of rising levels of convergence capital.

He was philosophical about the position that the reinsurance industry now finds itself. “We have come off the back of 10-12 years of fantastic returns in the reinsurance industry. Understandably the cycle moves against you at times and we are prepared to move back somewhat from the reinsurance world if we have to, and if the pricing isn’t right.”

Pinchin said that Hiscox’s diversified business profile affords the group “the availability and flexibility to continue to see good growth on primary lines”.

Not that Hiscox Re has had a bad year. While the mid-year renewals were tough, with significant rate reductions experienced by all participants in the market, Pinchin said that Hiscox had benefitted from a strong January renewals and a successful 2012. Coupled with a “benign catastrophe situation for Hiscox”—which managed to avoid cat losses in Europe and Canada, thanks to good underwriting and a dose of “good fortune”—the reinsurer is strongly positioned for 2013 results, with seven weeks to go.

Pinchin admitted that the rating environment may prove a challenge as the reinsurer heads towards 1/1, adding that Hiscox would make a decision as to “whether the rating of risks is adequate” closer to the time. He said that Hiscox will consider closely the “nature of our long-term relationships and the quality of the cedants we are dealing with, but ultimately price is important. We are not prepared to write business at any price—our capital is too important to us—and those are challenges we may well face in the period coming up to the year end, but I wouldn’t want to call that too early.”

He said that convergence capital may challenge premium volumes at the coming January renewals, adding that if the market looks to sell reinsurance too cheaply then Hiscox would “be prepared to walk away from business if the pricing does not meet our criteria.” Pinchin said that there is however an expectation that long-term relationships will outlast any immediate downward rate movement.

Hiscox Re will be deploying its own convergence capital to market, in the form of its Bermuda-domiciled sidecar, Kiskadee Re, which is expected to bring $250 million of capacity. The sidecar will be writing a diverse portfolio of risk said Pinchin, but will represent only a small portion of what the re/insurer writes in the traditional space. “From a standing start however, it is quite a significant commitment to that market and we hope the quality of our brand, and our relationships with our clients and broking colleagues will mean that we can become a major player in that area in due course.”

Pinchin added that the sidecar allows Hiscox Re to offer clients “greater line size, by coupling our capacity with that of the fund”. He said that viewed alongside the brand and reputation of Hiscox, the vehicle would likely prove a compelling proposition.