Hiscox can go wild at 1/6-1/7 renewals, but only for well-known cedents
Hiscox will continue to grow reinsurance exposures through the June and July treaty renewal deadlines, but is likely to focus its affections on known risks from the existing client base, CFO Paul Cooper (pictured) has indicated.
“Market conditions remain extremely favourable,” Cooper told his company’s Q1 earnings call. Hiscox goes into mid-year renewals ready “to deploy capital in a disciplined manner if favourable conditions persist and with high focus on maintaining the high quality of our book.”
High quality appears to mean known quality. “We’ve got a number of high quality cedents and we'd be looking to grow premium with those high quality cedents rather than adding to the number of cedents.”
Hiscox’s Re & ILS segment laid claim to an eye-opening 37.6% growth in net written premiums in Q1, well ahead of the mild 5% growth in gross premium to $418 million as Hiscox ponied up its own capital for deployment, while covering $148.4 million in net outflows of third-party capital.
No sign yet that third -party capital might return to the scene, Cooper indicated. ILS markets remain “in a state of flux” with some inflows focused on cat bonds but continued scepticism for the collateralized and quota share portions of the market. Markets need to see proof in the results and be able to look beyond the ever-larger array of attractive asset classes now that interest rates have risen, he said.
“We remain very engaged with the ILS market and if and when that capital chooses to come in, I think we are very well positioned,” Cooper said.
Hiscox Re & ILS took an average risk-adjusted rate increase of 41% in the first quarter, in part after having taken a risk-adjusted rate increases of 45% in property and 26% in specialty at the 1/1 renewals, with rate improvement in all lines of business.
Hiscox has largely used the hard reinsurance market to move upwards in reinsurance towers and reducing exposure to aggregate covers where attritional losses had started to dominate the loss experience.
At the April renewals, Hiscox took rate increases of a slightly lower 20% for a regional book that had already sone some rate adequacy work in prior periods. Hiscox can brag of a “good market share in Japan,” Cooper said. “We didn’t grow exposure because we were comfortable with our position.”
Measured by PMLs, the trend will remain as it was reported for late 2022: the long-shot 1:100 and 1:250 PMLs are rising as Hiscox leans into the market and accepts more net exposures; the shorter 1:5 or 1:10 PMLs are being more actively suppressed.
Some measures of growth may be eventually capped by the need to maintain portfolio diversity.
“We’ve got the firepower to take rate and exposure into this market,” Cooper said, and Hiscox will hold the flexibility to focus growth where rates are attractive while being “more measured” where they are not.
“But we want to make sure we maintain a balanced portfolio.”
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