Hiscox counts ‘limited’ exposure to Ukraine war

Hiscox said its exposures to the ongoing war between Russia and Ukraine are overall “limited” during a presentation of its full-year 2021 results.

The group’s chief underwriting officer, Joanne Musselle, said there are three main areas in which Hiscox is exposed to the conflict. The first is through its direct exposures, notably its terror and political violence portfolio, where it is nonetheless not expecting a significant loss, in large part thanks to its reliance on reinsurance.

Musselle added: “Other areas you may expect some losses, but not in our portfolio, would be in political risk – that’s a portfolio that’s in run-off for us; in aviation hull – again that’s a portfolio that’s in run-off for us. And obviously on the trade credit side, where we have very limited, minimal exposure.”

Hiscox has also seen some activity on its kidnap and ransom portfolio, under which it has needed to evacuate people.

The second kind of impact could be in relations to sanctions the West has placed on Russia, which Musselle said could affect Hiscox premiums.

“Compared to our gross written premium, it is a tiny proportion that would be subject to sanctions,” she added. “Albeit really small, the biggest area would be London market and we’re working with Lloyd’s on that.”

The third part is in indirect exposures, most notably cyber. Russia has occasionally used cyber attacks as a tool of warfare.

“It’s too early to be definitive speculate about how this could emerge,” Musselle said. “We have a variety of war exclusions and infrastructure exclusions across our portfolios. Of course, it will come to how this will unfold.”

Finally, she added, Hiscox could also be affected by the added inflation that could arise as a consequence of the increase in commodity prices. Russia is a very large commodities producer.

As regards inflation, Musselle said Hiscox is taking the risk into account in its underwriting and pricing accordingly.

Musselle was speaking during the presentation of Hiscox’s full-year 2021 results, which surprised analysts on the upside. The profit before tax of $191m for 2021 was far ahead of  analysts’ consensus expectations for a $139m result.

This was driven by lower-than-expected attritional losses and a favourable expense ratio, Jefferies analysts said.

“Hiscox is starting to deliver a material improvement in underwriting quality following the restructuring of its wholesale business, which is further supported by the hardening of the cycle,” Peel Hunt analysts wrote.

Although Hiscox’s US retail “remains in restructuring mode”, Peel Hunt added, that business “is on track to revert to its targeted margins in the next few years”.

The turnaround of the group has been helped along by rapidly improving pricing over the course of the last few years.

Hiscox London Market began benefiting from rate increases as early as 2017 and has seen a cumulative rate increase of 60%, including a 13% average rate improvement in 2021.

However, the speed of increase is beginning to slow down in all lines except cyber.

Hiscox expects rates in its London market business to continue their upward trend, but with momentum slowing further. “However, rate adequacy remains solid and rates are likely to remain in positive territory growing by mid-single digits,” it added.

Hiscox Re & ILS achieved a cumulative rate increase of 35% since 2017, including an 8% average rate increase in 2021.

European floods in July, Hurricane Ida’s landfall in August and US tornadoes in December contributed to better underwriting discipline and further rate strengthening in North American property lines, risk, retro, marine and specialty as well as loss-impacted European business.

Hiscox warned, however, that even after a 10% increase in reinsurance rates at the January 2022 renewals, further rate increases are necessary to achieve satisfactory returns.

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