Childs sees demand still rising for ILS

  • Upbeat outlook: Robert Childs, chairman of Hiscox

    Upbeat outlook: Robert Childs, chairman of Hiscox

Hiscox chairman Rob Childs expects investor demand to keep driving growth and innovation in the insurance-linked securities market.

Mr Childs was speaking after the Bermudian-based insurer and reinsurer said assets under management in its Hiscox Re ILS division had climbed to $1.6 billion.

In its half-year earnings statement, Hiscox said pretax profit was $163.6 million, up from $129.1 million in the first half of 2017, while gross premiums written rose 21 per cent to $2.23 billion.

Results were helped by reserve releases of $154 million, as estimates on losses related to 2017 catastrophes were reduced.

Hiscox is headquartered in offices in Wessex House on Reid Street, from where it also runs a reinsurance and ILS operation.

Mr Childs told The Royal Gazette that the ILS division was seeing strong investor demand.

“The issue is not attracting the capital, it’s attracting the business,” Mr Childs said. “The image I have is of a dam, with the water level behind the dam just continuing to grow, the water level being the capital.

“And it just doesn’t seem to stop raining. As that capital grows, it’s going to force more and more avenues for growth.”

While catastrophe bonds form the lion’s share of ILS products, Mr Childs expects the asset class to provide coverage of a broader range of business lines, driven by investor demand.

He sees reinsurance as the obvious area for ILS expansion, given its big premiums, low policy count and modelled business that allows third parties to give some justification to the pricing.

“It’s just how they get over the mechanics of business that has different profiles and where there isn’t a third-party justification for the pricing,” Mr Childs said.

“As the models are developed in other lines of business, then I think ILS will continue to grow. And as people get more and more comfortable in the ILS capital providers, it’s whether they’re prepared to accept unmodelled risks.”

The Hiscox Re & ILS segment recorded gross premiums written of $656.6 million during the first half of 2018, up 28.5 per cent on the corresponding period last year. The combined ratio — the proportion of premium dollars spent on claims and expenses — improved to 71.5 per cent from 83.4 per cent year over year.

Strong growth early in the year slowed in the second quarter, Hiscox said. Mr Childs said Hiscox would maintain its underwriting discipline as rates flatten out.

The company sees opportunities in cyber-risk and launched a cyber industry loss warranty product in March.

Asked about Hiscox’s approach to cyber-risk, Mr Childs said: “I would borrow an expression from another reinsurer: I’m not entirely sure how to price it, but I do know how to spread it.

“We will eventually over time be happy with the pricing. There’s a huge potential for growth. You’ve got regulation driving it in Europe, the UK and the US. So in that particular case, we have governments on our side.

“Around every boardroom table, the question is: what are we doing about information security and are we insured? So I can see this as huge.

And on the challenges of underwriting cyber, he said: “In reinsurance, we tend to give an aggregate policy. We can calculate to a relative degree of certainty what a really bad loss would cost us. We just couldn’t tell you whether it was a one-in-100 [-year event] or a one-in-200.”

While all of Hiscox’s businesses contributed to first-half premium growth, the retail business is doing particularly well and the company is on track to exceed one million retail customers this year. Hiscox’s board declared an interim dividend of 13.25 cents per share, up 5 per cent.

Mr Childs has an upbeat outlook.

“I feel there are tremendous opportunities for the business as a whole,” he said. “The London market requires a lot of discipline, as does the reinsurance. You have to make sure you expand at the right time and contract at the right time. We’ve got huge opportunities across the world, so we feel cautiously optimistic.”

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Published Jul 31, 2018 at 8:00 am (Updated Jul 31, 2018 at 12:31 am)

Childs sees demand still rising for ILS

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