Hiscox to Raise Capital in Response to COVID-19 Growth Opportunities and Exposures

By | May 5, 2020

Lloyd’s insurer Hiscox is planning a capital raise via the placement of new ordinary shares, which will enable the company to respond to expected growth opportunities ahead and prudently prepare for possible “downside scenarios.” of the COVID-19 crisis.

New ordinary shares of 6.5 pence each will be issued, which will not exceed 19.99% of the company’s existing ordinary share capital.

Hiscox is expecting opportunities for growth in wholesale and reinsurance markets as a result of capital contraction and rate improvements across the market due to the COVID-19 pandemic.

The company is seeing positive rate momentum in its London market business, while Hiscox Re & ILS is positioned well “to capture opportunities presented by capital contraction which is expected to drive rates up further” and opportunities for Hiscox Retail “remain significant.”

Hiscox said its “capital, liquidity and funding positions remain robust, with sufficient capital available to meet expected liabilities arising as a result of exposures to the COVID-19 pandemic.”

The group has taken a number of actions to protect its capital position which include:

  • A program of expense savings that have put a freeze on recruitment and curtailment of travel and entertainment expenditures. On top of existing efficiency programs already under way, the board expects these actions to generate a $60 million to $90 million expense saving.
  • The purchase of $100 million of new reinsurance protections. Hiscox said it maintains a comprehensive and high quality reinsurance program purchased from a diverse range of reinsurers to protect its underwriting portfolio. It also has purchased industry loss warranties (ILW) to protect the natural catastrophe book ahead of the U.S. wind season, The company also is exploring selective loss portfolio transfers to release capital.
  • The board announced on April 8, 2020 that it would not pay a final dividend for 2019, nor any interim dividend. It also will not conduct any share buybacks for 2020 in order to preserve capitaln. (The Hiscox board expects these decisions on dividends and buybacks to generate approximately $125 million in 2020).

These actions and the capital raise “would give Hiscox significant capital headroom to withstand a range of modelled downside scenarios as well as provide it with the flexibility to deploy capital for future growth.”

Indeed, Hiscox’s actions to solidify its capital position would raise its Bermuda Solvency Capital Requirement (BSCR) ratio from a pro forma estimated level of 195% to 250% — even after absorbing a projected pandemic loss of $175 million.

Hiscox has said its pandemic-related exposures include event cancellation and abandonment, media and entertainment and other segments such as travel insurance.

The insurer has come under fire from some of its policyholders, who are disputing pandemic exclusions to their business interruption policies, and are now gearing up to take Hiscox to court over its BI exclusions.

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