Hiscox Comments on Renewals, Investments, Currency, Hurricanes

January 27, 2009

Bermuda-based Hiscox Ltd. has issued a summary of the January renewals, its expected investment returns and the effect of currency fluctuations, as well as its hurricane loss estimates.

Hiscox said it has “seen good rate increases in key areas, especially reinsurance which accounts for over one third of our gross written premium. Rates for peak zone US reinsurance business rose on average by 15-25 percent, and on regional business by between 5 percent and 30 percent depending on claims experience.”

Hiscox added that the U.S. “accounts for over 70 percent of our reinsurance business and gross written premiums for reinsurance during this period have increased even as we cut back on accounts which did not meet our target returns. We expect these rates to remain strong and to have increased further by the time of the important US renewals in June and July.”

However the picture is not so rosy when it comes to investments. Hiscox said its “investment return for 2008, excluding currency hedging contracts as described below, is approximately -1.3 percent calculated on the average value of the portfolio over the year. The value of the portfolio at the end of the year was approximately £2.5 billion [$3.546 billion]. The negative return includes mark to market losses on prime mortgage and asset backed US bonds which continue to perform and are expected to return to par as they mature.”

Hiscox is now domiciled in Bermuda, although it began life in London (at Lloyd’s). Its operations outside the UK are therefore transacted in currency other than the pound sterling. The weakness of the UK’s currency, especially against the dollar, has therefore “led to a material increase in net asset value per share, and increased the value of the Group’s capital held in Hiscox International (Hiscox Bermuda, Hiscox USA and Hiscox Guernsey),” said the bulletin. “The benefit to the Group’s balance sheet is expected to exceed £150 million [$212.5 million], but will be partially offset by a loss on attributable currency hedging contracts of £42 million [$59.5 million] which will be reflected in the consolidated income statement.”

Hiscox concluded the summary by confirming that it has completed “our reserving process and our estimates of ultimate claims from Hurricane Gustav and Ike are unchanged at $25 million and $150 million, respectively (both figures are net of reinsurance and reinstatement premiums). These estimates are based on industry losses of $2.75 billion for Gustav and $17.5 billion for Ike.”

Source: Hiscox – www.hiscox.com

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