Hussain: Hiscox Re & ILS poised to seize property cat opportunity

Property catastrophe continues to represent one of the “best areas for growth” for Hiscox Re & ILS with rising rates and a capacity crunch leading to increased demand for limit, according to group CEO Aki Hussain.

Speaking to The Insurer, Hussain said Hiscox had put its “cautionary stance” on property catastrophe behind it and would now look to deploy capital where it saw opportunity supported by adequate rate rises, highlighting the class as a particular growth prospect.

He said the carrier’s Bermuda-based Hiscox Re & ILS unit – led by Kathleen Reardon – views property catastrophe as “one of our best areas for growth”, primarily as a result of the heightened demand for limit.

His comments come after Hiscox Re & ILS delivered a 37.1 percent uplift in gross premiums written to $822.7mn in the first half of 2022, which Hussain described as an “excellent” result, underpinned by growth in property cat and retro and rate increases of +13 percent.

“On our property catastrophe portfolio, the team were ahead of the curve in addressing the recent loss trends and are now in a strong position to support clients with meaningful capacity and quoting capability,” he said in an interview with The Insurer.

“After a relatively cautionary stance in Re & ILS in recent years, driven by market conditions, this year we have seen significant rate increases in US property cat, retro and cyber in the reinsurance space. That is driving the 37 percent growth you have seen in the first half; property cat and retro in particular because of capacity crunch,” he said.

“Some markets have also decided this is not the right place for them which has compounded the capacity issue,” he continued.

Hussain – who replaced the long-serving Bronek Masojada as CEO of the London-listed (re)insurer in January – said “there is a real expectation” that the market will see further increases into 2023.

“Whilst there are segments of the market that are now demonstrably hard, the majority of the market is still going through the process of hardening which as we know comes with time,” he said, noting that the demand for reinsurance exceeded capacity in “the hardest segments of the market” during the June renewals period.

The executive – who joined Hiscox as group chief financial officer in 2016 – gave the example of the Florida mid-year renewals, where a well-documented capacity crunch following reinsurer retrenchment led to year-on-year price rises in property cat business.

“To put into context what has been happening, if I give you one very specific example, in Florida, which is a big buyer of property cat insurance and reinsurance, the reinsurance rates last year were up between 20 and 30 percent. They were up again 30 percent this year, so it is beginning to get very interesting,” he explained.

“We deploy capital depending on market opportunity so when you look at the group overall, I would expect on our own balance sheet that the property cat exposures will not decline, but rather be flat to slightly rising, as we rebalance more towards reinsurance.”

Despite the opportunity, Hussain said Hiscox would continue to reposition its reinsurance underwriting strategy ahead of the 1 January renewal, warning that decision-making will need to factor in the impact of the hurricane season, with forecasters expecting an above-average level of activity.

“We are growing where we see attractive opportunities,” Hussain said. “But the wind season is still ahead of us so we’ll be reviewing our strategy for 1.1 again after that.”

And there are other headwinds that need to be taken into account, he explained, flagging spiralling inflation as an issue that requires a “multi-faceted approach” that has to look at both the client’s approach to inflation risk and appropriate load for other portfolios that need adjustment.

“The group is taking a multi-faceted approach to inflation and always has done,” he said. “There are considerations for claims you have yet to pay, and for business you have yet to write.  Specifically in our reinsurance business, we have a robust approach which assesses the exposures in our client’s portfolio and determines how they compare to exposure in similar regions in our overall portfolio.”

Hiscox’s ILS proposition has been a notably strong performer in 2022. The unit continues to attract new inflows, up to $550mn in H1, while assets under management stood at $1.9bn at 1 July 2022, both metrics that outstrip the full-year 2021 figures.

“We are operating in a complex environment where there are concerns around inflation, recession and the supply chain driven by geopolitical and macroeconomic factors. This dynamic is increasing the demand for reinsurance protection, but at the same time clients are quickly adjusting their approach to ensure they are adequately adapting to the evolving risk – particularly as insured values and cost of claims are likely to rise,” Hussain explained.

“These challenges are not limited to the insurance industry though. As we speak to our ILS investors, we make sure they understand our approach of how we are navigating through a challenging, but improving market.”

And while the catastrophe bond market produced a small negative return in the first half of the year, according to Swiss Re, Hussain predicted that performance will recover strongly in the rest of the year with investors drawn to the better-performing ILS managers.

“While some investors are reconsidering their positions in the sector given historical loss performance and broader macroeconomic factors, others are looking to deploy more in an improving sector and will align themselves with ILS managers such as Hiscox ILS who have performed well,” he concluded.