Hiscox shares surged more than five percent in London trading yesterday after the Bermuda-based re/insurer reported profits that were 44 percent higher than in the same period last year.Hiscox Group CEO Bronek Masojada told The Royal Gazette that the improved results were down to a blend of good underwriting, a lack of catastrophic events, growth in the company’s retail business in the US and UK and a favourable impact from currency exchange rates.In an interview, he revealed that June and July reinsurance renewal rates had been down by a double-digit percentage, and said Hiscox remained happy with its Bermuda domicile, particularly from a regulatory standpoint.Pretax profit rose to £180.7 million ($278 million) in the six months to June 30 from £125.8 million in the year-earlier period, the company announced yesterday. That comfortably beat the £115 million median estimate of analysts surveyed by Bloomberg.The group’s gross written premiums rose 12 percent to £1.02 billion. But its net investment income almost halved in the first half to £23.3 million from £44.5 million, eroded by its US bond investments.Hiscox also announced a 17 percent increase in its interim dividend to 7p per share.The company’s share price closed at 633p in London, up 32.5p, or 5.3 percent.Hiscox is based in Bermuda and also has a reinsurance underwriting unit here, which wrote slightly more business than last year in UK pound terms, with gross written premiums of £161.9 million, compared to £159.4 million in the first half of last year.However, Mr Masojada said reinsurance renewal rates on June 1 and July 1, traditionally when most of the coverage for the US hurricane season is bought, were impacted significantly by the growth of insurance-linked securities (ILS).“We said in May that the ILS market would have a real impact on June 1 and July 1 renewals and it did so,” Mr Masojada said. “As far as US-exposed renewals go, catastrophe prices were down ten to 15 percent on average.“At Hiscox, we did quite a lot of front-loading — we wrote more business in January 1 than we would normally have done.”Mr Masojada said he expected ILS market share to continue to grow and to potentially pose a threat some traditional reinsurers.“It’s just another market participant,” he said. “Clients like it as part of their reinsurance programme, but we don’t believe they’ll want to make it their entire reinsurance programme.“At the moment, it’s about 15 percent of the market and it could end up being 20 to 30 percent. I don’t see it becoming 50 percent. So yes, it’s a threat to marginal players, but if you have a broad-based book and a reputation for paying claims fast and fairly, then I think that is an underestimated competitive advantage.”He also saw some potential risks for ILS in the event of a major loss event late in the year.“I think there’s no doubt that it would cause material problems for the market if there’s a big event in late December, for example, when a lot of people would be expecting to release capital on December 31 and redeploy it on January 1,” the CEO said.However, Mr Masojada believes the alternative capital will not exit the market when interest rates increase, something that would make other less risky investments more attractive than they are today.“There’s a lot of questioning about whether all the ILS will disappear once interest rates go up,” he said. “There have been ILS around in various forms, whether sidecars or cat bonds, for 15 years and there has been a growth spurt in the last six months. We believe that ILS are here to stay.”Hiscox has embraced the ILS market, most notably through a joint venture with Bermuda-based Third Point Re, announced last year.Hiscox, based in offices in Wessex House, on Reid Street, Hamilton, redomiciled from London to Bermuda seven years ago. Mr Masojada said the company came to Bermuda for strategic, tax and regulatory reasons.“The strategic reasons are just as valid as they were then,” he said. “We committed to building a business in Bermuda and the US and Bermuda is a great place from which to direct that. Being based in Bermuda, we have a global view of the world, rather than a UK- or US-centric view.“Tax has become less of a factor. The UK is en route to reducing its tax rate to 20 percent. There is still tax value for Hiscox in being based in Bermuda, but it’s less than before, because the UK rates have gone down.“The third reason is regulatory and I would say the regulatory benefit of being in Bermuda has increased over the last seven years. We find the BMA to be a regulator that is understanding of the industry, but not familiar with the industry. It hasn’t inflicted on the Hiscox Group the cost and uncertainties of Solvency II, which the UK has done.“Bermuda, as a country, has had its challenges, but we think the Government’s doing a great job in making sure the Island’s on a good fiscal footing and quite frankly, what country in the world hasn’t had challenges in the past three or four years?”