High net worth and reinsurance also ripe for growth

Hiscox will continue growing its retail business after its UK division turned in a record first-half performance, according to chief executive Bronek Masojada. It is also looking at raising more capital from investors to prepare for a hardening in the global reinsurance market.

Hiscox UK, which mainly writes high-value household insurance, luxury motor and SME commercial business, made a profit before tax of £25.2m in the first half of 2011, up 61.5% on the £15.6m profit it made in the same period last year. Gross written premium in the UK unit rose 8.8% to £182.9m, and the combined ratio fell 3.9 points to 87.9%.

The Hiscox group as a whole, however, posted a pre-tax loss of £85.6m in the first half of 2011, compared with a £97.2m profit in the same period of 2010, as a result of the heavy catastrophe losses in the first half of this year. The group’s combined ratio was an unprofitable 116.9% in the first half of 2011, compared with a profitable 93.6% in the first half of 2010.

“Over the last 10 years, the retail business has gone from between 15% and 25% of Hiscox’s book to around 45%. That trend is going to continue,” Masojada told Insurance Times.

“In the UK, you’ll see a continued focus on the marketing and a real focus on small commercial and professional indemnity business, both through the broker channel and online.”

He added: “In the high net worth area, we always punch our weight, so we think we’ll make progress there as well.”

Hiscox also sees the reinsurance business as ripe for growth. The company has seen reinsurance rate rises of 10% on average in the USA, and more than 50% where large catastrophes have hit.

The company announced at the beginning of July that it had increased 2012 capacity at Syndicate 33, its main underwriting entity, to £1bn. The company also has an undrawn letter of credit facility that it could use to write more business if opportunities arose.

“We are also having a number of discussions with investors around sidecars and quota shares, which are ongoing but haven’t come to fruition at the moment,” Masojada said. A sidecar

is a special-purpose, investor-backed reinsurer that effectively allows the sponsoring company to write more business opportunistically.

Analysts expect Hiscox to make a small profit for the full 2011 year, without further major catastrophe losses.

We say …

? While Lloyd’s insurers, Hiscox included, have a strong focus on international insurance and reinsurance business, Hiscox seems determined to ensure it is also a household name in the UK.

? The overall group loss will be disappointing for Hiscox’s managers, but it is unlikely to surprise investors and clients, coming as it does after unprecedented catastrophe losses in H1.

? Hiscox’s lacklustre performance of a 1% return on invested assets will not tempt the famously prudent firm to take more investment risk. As Bronek Masojada says: “Now is not the time to be heroes on the investment portfolio.”