Robert Hiscox criticises market’s poor underwriting discipline and ‘staggering’ reserve boosts
Insurers are still willing to chase market share despite lower investment returns and tough market conditions, according to Robert Hiscox, chairman of Lloyd’s insurer Hiscox.
“I remain astonished at the lack of discipline in the insurance market,” he said, shortly after the publication of his firm’s first-half results. “There are a lot of big players who want market share.”
He also described some insurers’ need to boost reserves because of mounting motor bodily injury claims as “staggering”.
“Equity Red Star was always the best motor syndicate in Lloyd’s, and somehow the Australians have managed to woefully under-reserve bodily injury,” Hiscox said.
He added that, as a recent entrant into personal lines motor, covering small classic cars, Hiscox has no legacy exposure to bodily injury claims.
Hiscox’s comments come as his firm has reduced its gross written premium slightly to £904.3m in the first half of 2010, from £906m in the same period last year. The company grew some parts of its business and shrank others in response to market conditions; the London market division cut gross written premium by 15%, for example.
The insurer also exited the UK solicitors’ PI market in June. “We weren’t allowed to offer wide terms to good solicitors and narrow terms to bad solicitors. We have to offer one standard product, and there has always been too much competition there,” Hiscox explained.
He added that Hiscox had cut premium income on large US property risks by around 38%. “We are increasing certain areas of our business where we are successfully selling at the right price, but it is as competitive a market as it always is. If there is a large premium on offer, everybody competes for it.”
Hiscox’s profit before tax for the first half of 2010 was 31% down at £97.1m, compared with £141.4m in the first half of 2009, while return on equity almost halved to 14.8% from 27.5%,
both as a result of first-half catastrophe losses. Hiscox's combined loss estimate for the Chilean earthquake and Windstorm Xynthia remain at £100m, while its Deepwater Horizon estimate also stood firm at less than £10m.
“To have made a return on equity of 15% at the end of that six months, which was of epic proportions, shows a strong business, and we are thrilled with that,” Hiscox said. “Any fool can make money with four aces in their hand. The trick is not losing money when conditions are really against you.”