Hiscox wrote less reinsurance business in the first half of this year as rates softened — and chairman Robert Childs said the company will walk away from more business if it considers pricing to be inadequate.

The global insurer and reinsurer, whose head office in Bermuda employs about 60 people and houses its largest reinsurance operation, yesterday said reinsurance premiums for the six-month period fell 21.6 percent to £271.5 million ($461 million).

Hiscox said that during the April renewals, Japanese earthquake rates fell by around 15 percent, while US property catastrophe rates were down on average by 15 percent and international business rates slumped eight percent.

“Pricing in reinsurance is not driven by losses, it’s driven by capital — and there’s certainly an abundance of capital,” Mr Childs said.

Asked whether he felt rates were likely to continue falling, Mr Childs said losses could halt the decline — but they would have to be “very big” — and the sophisticated modelling used for catastrophe insurance could “provide a floor” for prices.

“I’m not seeing any sign of an end to the price reductions,” he added. “The important thing for the Bermuda reinsurance operation is that it remains profitable. We have to be prepared to walk away from business.”

Reinsurance had risen from ten percent of Hiscox’s income to as much as 30 percent during the past decade, Mr Childs said.

“We had a benign claims period for the first half of the year and that has masked the underlying deterioration in ‘big-ticket’ rates,” the Hiscox chairman said. “Claims will revert to the norm — it’s a matter of when, not if.

“We are building a strong global brand, distribution and products, and we have a business model that is as good as possible for these challenging times.”

Much of the alternative capital in reinsurance has come in the form of insurance-linked securities (ILS) — such as catastrophe bonds — and collateralised reinsurance products.

Hiscox is building out its own ILS platform in the form of special purpose insurer Kiskadee Re and its funds management operation, Kiskadee Investment Managers.

Mr Childs said this branch of Hiscox, which is based on the Island, was small but growing and had recruited several employees.

As a company born in the Lloyd’s of London market, Hiscox was used to underwriting with other people’s capital, Mr Childs said.

Whether the influx of capital into ILS continued would depend largely on the yields available elsewhere, he added.

“Now that reinsurance has been discovered as an alternative source of income, it won’t return to being undiscovered,” Mr Childs said. “It has become part of the reinsurance landscape.”

Hiscox, which offers insurance on everything from fine art to oil rigs, said pretax profit fell to £124.6 million ($211.6 million) in the first six months of the year, from £180.7 million a year earlier.

The company recorded a foreign exchange loss of £16.4 million — a sharp reversal from the same period of 2013, when it recorded a currency gain of £34.9 million.

Hiscox said it would pay an interim dividend of 7.5 pence per share. Hiscox shares fell 19.5p, or 2.8 percent, to close on 683p on the London Stock Exchange yesterday after the earnings were announced.