Hiscox Posts $46 Million Loss; Places $33 Million in Cat Bonds

April 16, 2002

The U.K.’s Hiscox Group, which operates as a retail insurer as well as running Lloyd’s Syndicate 33, reported a £32.5 ($46.5 million) loss for 2001, largely as a result of claims related to the attacks on the WTC. It also announced the placement of $33 million worth of Cat Bonds to secure reinsurance cover, perhaps signaling a trend to greater use of ART’s.

The company described the losses as almost entirely due to its Lloyd’s activities, indicating that its retail unit, Hiscox General Insurance Co;, posted an £8.7 million ($12.5 million) profit, but it suffered direct losses from the WTC attacks of around £30 million$43 million, which, combined with other catastrophe losses, pushed the company into the red.

According to London’s Financial Times the issuance of $33 million worth of cat Bonds by Hiscox through Aon, marks the first time that a Lloyd’s Syndicate has has turned to an Alternative Risk Transfer vehicle to provide reinsurance cover.

The article indicated, however, that other syndicates may be considering using the same procedure. The cost of catastrophe reinsurance has risen dramatically since the events of September 11, making the capital markets a more attractive alternative.

The placement of the bonds was structured and underwritten by Aon through St. Agatha re, a Bermuda-based reinsurer, and were priced at 675 points over “Libor” (the London Interbank Offering Rate) with a three year maturity.

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