Market discipline receding, warns Hiscox CEO
Bronek Masojada, group chief executive of Hiscox, has warned that discipline is receding in the reinsurance market even as rates harden again in some areas.
Masojada commented as Hiscox issued its interim management statement for the first three months of the year to 31 March 2018, revealing that it say gross written premiums increase from $929.8 million in the first quarter of 2017 to $1.156 billion, a rise of 20.3 percent.
“After a costly year for catastrophes in 2017, our London Market and reinsurance businesses mobilised quickly to grasp the opportunity and grew strongly,” said Masojada. “Sadly, discipline and good sense is receding in the market, so for the rest of the year growth in big-ticket business will be more measured.
“Our long-term strategy of investing in less volatile retail lines continues to provide balance and opportunity for growth.”
Hiscox London Market and Hiscox Re & ILS took advantage of the hardening market at the important 1 January renewals. Hiscox Retail continued its good momentum.
According to Hiscox after years of deterioration in big-ticket lines, the first quarter saw some continuation of the positive rate movement experienced in the second half of 2017, however it has not been widespread.
In the London Market, the company said that rates have improved most in catastrophe-exposed business, particularly in loss-affected lines. Rates in major property have increased by 20 percent in aggregate, and US household and commercial property binders have seen increases of up to 10 percent. Some casualty lines which are under stress have also seen rating growth.
In reinsurance, 2017 price declines have arrested and the positive momentum experienced in the lead-up to 1 January renewals has continued. The US portfolio has seen the most movement, with prices up 9 percent on average. Rates at 1 April, a key renewal for much of the international book, were generally flat. As Hiscox look ahead to further mid-year renewals in June and July, it sees little prospect of rate improvement as an abundance of capacity from traditional and alternative sources remains a feature of the market.
According to Hiscox the investment environment has been challenging in the first quarter. Whilst the company has seen a welcome rise in interest rates and it is beginning to see a corresponding increase in investment income, this is accompanied by the short term adverse effect of mark to market accounting on its fixed income portfolio. Hiscox has also experienced a more volatile environment for equities, with many of the global indices falling. The investment return to 31 March 2018 was -0.2 percent (2017: 0.7 percent) on a non-annualised basis.
Invested assets totalled $6.6 billion at the end of March, with asset allocation remaining largely unchanged from the end of last year. According to the company the high quality and short duration of its portfolio sees it well positioned to respond to changing macroeconomic conditions and monetary policy moving forward.
