23 October 2015 Insurance

Hiscox vows to walk away from under-priced business

Hiscox has said it will turn its back on business at renewal if it sees reductions next year similar to those witnessed in the past couple of years.

Ross Nottingham, the re/insurer’s North American and Caribbean head of reinsurance, told PCI Today that “there’s not a lot left in the tank” and that the re/insurer would shun business that did not make financial sense.

“We look at it on a deal-by-deal basis and we don’t think there is a lot more left to give in terms of margins. We will start to walk away from business if we see the same sort of rate reductions we have seen at the January 1 renewals for the last couple of years,” Nottingham said.

But he dismissed estimates that the price at January 1, 2016 could fall by as much as 10 percent in some business lines.

“We don’t see it coming off that much and from the conversations we have had the market agrees with that.”

He said that the increasing trend toward the commodification of reinsurance, where price is the main driver in any negotiation, is one that Hiscox does not buy into.

“I object to those who say reinsurance is a commodity—it’s not a commodity. There is the need to distinguish between clients—be it valuations, claims capabilities, exposure monitoring and data monitoring—functions that are not immediately clear to the untrained eye. It’s not just a case of pressing the button and away we go,” Nottingham said.

He warned that intense concentration on price meant that some players were in danger of weakening the foundations of their businesses.

“It’s actually a lot more damaging to lose relationships in the long term than go for a few extra dollars,” said Nottingham.

“You start to upset panels and have people walking away from long-term relationships that they have invested a lot of time and money in, losing key relationships where they may have shared data over the years just to get a couple of dollars off. I am not sure that’s wise.”

Nottingham revealed that US brokers are telling him that clients are reluctant to walk away from existing relationships—especially with winter on the horizon.

“We are all expecting winter 2015/16 to be as bad as 2014/15—whether you buy into the El Niño effect or the Old Father’s Almanac, the predictions are that we are in for a bad winter once again, particularly in the north east US.”

He added that whether products are sold on an aggregate basis will be a talking point at this year’s PCI conference.

As will the tiering of reinsurers. “That is always an interesting one,” Nottingham said. “Some cedants seem to be going for that in a big way—even cutting panels from 80 to 20 we have recently heard—while others appreciate the diversification that a big panel brings.

“Mergers and acquisitions are also sure to be a topic. The traditional pie is getting smaller and those that are left fighting will find themselves in that price-only discussion. What we have tried to do is move away from that and think about what the client is trying to achieve through buying reinsurance—understanding their business concerns and their goals and designing reinsurance around that.”

Nottingham said that Hiscox was not looking grow any new business lines but rather develop existing ones including specialty lines, terrorism and nuclear, although he did say that the firm was looking for growth in its casualty lines where they are” below market share”.

Hiscox will also look at the excess of loss (XL) book on the property side if the data quality is right and the pricing is right, as “those are two things we will be fastidious about”. He said there was a keen appetite for aggregate XL in the north east US following a series of substantial losses earlier this year.

The cyber is another book of business that is looking very healthy, Nottingham revealed, thanks in no small part to London-based head of specialty Rob Ashton.

“We have been looking at it on a treaty basis and selling some unique bespoke product to the guys writing it in the consortiums on the original form,” said Nottingham.

Cyber is a book of business that is set for rapid growth—once both the industry and the clients understand it.

“There haven’t been enough ways of capturing the loss and it has grown at such a speed that people will soon realise that they can indemnify the loss through the private insurance market. It is just a matter of time,” Nottingham said.

He was keen to emphasise how Hiscox’s North American business has evolved in recent years and developed new revenue streams.

“We have taken risk aggregate protection products from zero a couple of years ago and it’s now growing new limit in the market while solving clients’ problems—it is a massive win all round.

“Our growth in specialty and casualty lines non-cat portion is now over 30 percent, which is a massive change from days gone by and one that is a little under the radar. I can see it growing further."

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