Hiscox leans into hard market to record strong half-year profit

Bermuda-based Hiscox rode a $300 million turnaround in investment income and the hard market in property insurance to produce a near eight-fold improvement in net income in the first half of the year.

The specialty re/insurer recorded a $250 million net profit compared to $33.6 million in 2022.

Investment income was $121.8 million compared to a loss of $214.1 million due to improved yields from bond investments.

Insurance revenue rose 3.2% to $1.94 billion from $1.88 billion and Hiscox’s insurance service result was $221.4 million compared to $140.2 million in 2022.

Chief executive Aki Hussein said: “The group delivered continued growth and strong profits in the first six months of the year, as we benefited from sustained momentum across our retail businesses, a proactive approach to (re)insurance cycle management in big-ticket, continued underwriting discipline, and a positive rating environment that persists across all business segments.

“Losses were within our expectations and we deployed incremental capital judiciously where we saw attractive opportunities.

“Profit before tax of $264.8 million is a combined effect of the insurance service result of $221.4 million, up 57.9% on the prior period, and the improved investment result of $121.8 million, as higher bond reinvestment yields begin to earn through.”

He said rates in property lines had remained particularly buoyant in both reinsurance and primary lines.

He said: “Hiscox Re & ILS benefitted from an average rate increase of 34%, with positive trends experienced in all lines of business - most notably in North American natural catastrophe (up 43%) and retrocession (up 42%). This is the sixth successive year of rate improvement in Hiscox Re & ILS with cumulative rate increases of 95% since 2018.”

Hussein added: “Our reinsurance business is leaning into the hard market in a focused way and enjoying some of the best market conditions in over a decade. Our London Market business has returned to growth, as we believe the property book is priced adequately following significant re-rating and we are benefitting from attractive new growth opportunities in upstream energy, marine and renewables.

“In retail, the opportunity remains significant, particularly in the USA, as the digitalisation of small businesses continues to accelerate and new business formation levels remain strong.”

Hussein said Hiscox had experienced “downward pressure on rates in certain segments of our cyber portfolio, we have remained disciplined and accepted a decline in share to maintain quality of earnings”.

He added: “As previously disclosed, we have also been exiting some non-core underwriting partnerships in the UK which are outside of our risk appetite. These two factors, which we consider to be transitory, have tempered headline growth in order to maintain quality of earnings.”

He said technology investments were paying off in the US, with “digital direct now achieving double-digit growth and digital partnerships gaining momentum in the second quarter”.

He added: “Cyber reinsurance continues to benefit from notable rate increases (25% at half year), and our terror business saw rates increase by 31%. Importantly, in these hard market conditions we have improved the quality of our book by significantly removing aggregate contracts and moving to higher attachment points.

“Hiscox London Market achieved a 9% rate increase in the first half of 2023, with an overall 72% cumulative rate increase since 2018. Property lines are seeing the strongest increases, with 27% in household and 23% in major property, and we see the potential for further rate hardening through the rest of the year. Terrorism rates are up 15%, as expected, driven by geopolitical uncertainty, which allowed us to maintain top-line premiums whilst reducing exposure, thus further increasing the overall profitability of the portfolio.

“In contrast, casualty lines, in particular D&O and cyber, continue to see rate decreases. Overall, we expect London Market rates to continue their current trajectory for the remainder of 2023.”

Hiscox’s undiscounted combined ratio was 90.2%, down from 92.7% in 2022.