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Childs: Brexit ‘not a bad thing’ for Bermuda

Ready for Brexit: Robert Childs, chairman of Hiscox

Hiscox is ready to restructure in response to Britain’s impending departure from the European Union — but Brexit is unlikely to do any harm to Bermuda as an insurance and reinsurance jurisdiction.

That is view of Robert Childs, chairman of Hiscox, who was speaking with The Royal Gazette after Hiscox announced half-year profits that rose 52 per cent to £206 million. Some of the increase was down to the weakness of the UK pound after Britons voted to leave the EU in a June 23 referendum.

In the interim earnings statement, Mr Childs said Hiscox was ready to set up a new European insurance company, if necessary.

While the company’s head office is at Wessex House, in Reid Street, it writes a large proportion of its business through the Lloyd’s of London market.

“For us, Brexit is a structural rather than a strategic issue,” Mr Childs said. “Theresa May [Britain’s new Prime Minister] says Brexit will happen but no one knows what it will look like yet.”

Hiscox was preparing for either “Brexit light” — a scenario in which the UK retained full access to the EU market and free movement of people and good continued — and for “Brexit heavy”, in which market access became limited by the loss of “passporting rights” that allow British-based companies to trade without restriction in the EU.

“As we said before the referendum, we were, in a corporate sense, agnostic about the vote,” Mr Childs said.

“We have a big European operation that generates $260 million worth of business. We’re in Spain, France, Germany, the Benelux countries and Germany, so we’re already there.

“So we could easily set up a new insurer in Europe if we needed to. We would probably look to decide by the first quarter of 2017 in which country we would want to set up and it would take about 12 months to do that, so about 18 months to it actually starting up.”

Speaking on the industry-wide impact, he said the reinsurance side of the Lloyd’s market was “the most likely to travel post-Brexit”.

As for the impact on Bermuda, he said: “It shows how important Solvency II equivalency was for the island. Bermuda now has an established relationship with Eiopa [the overseer of insurance in the EU] and I can’t see Brexit as being a bad thing for Bermuda.”

The European Commission earlier this year gave Bermuda “third-country equivalence” with Solvency II, the 28-country bloc’s new regulatory regime for the insurance industry, which means Bermudian-based insurers will be able to do business on a level playing field in the EU.

“Britain will have to apply for Solvency II equivalence and that will be interesting,” Mr Childs said.

Hiscox’s pretax profit of £206 million was up from £135.1 million last year.

With London-listed Hiscox declaring its profits in pounds, the dramatic weakening of the pound in the last week of the first-half period gave a massive boost to results, given that much of Hiscox’s profit was generated in US dollars and euros.

Excluding the foreign exchange gain, Hiscox’s net income was £118.7 million. Hiscox’s retail business was the largest contributor to profit, while Hiscox USA delivered the strongest growth of 32.8 per cent in local currency and Hiscox London Market grew by 9.7 per cent.

The group combined ratio — the proportion of premium dollars spent on claims and expenses — was 80.7 per cent, or 88.4 per cent excluding the currency impact. The reinsurance side of the business, which is headquartered in Bermuda, managed a combined ratio of 56 per cent, or 69.8 per cent, excluding currency gains. It generated profit of £54.6 million on gross premiums written of £364.7 million.

Bermuda is also home to Kiskadee Investment Managers, the group’s alternative capital management arm, whose assets under management have risen to more than $1 billion, an achievement described in a note by analysts at Shore Capital as “a quite remarkable success story to date”.

For many competitors, the second quarter brought material catastrophe losses, but Hiscox estimated a relatively modest £19 million loss, something Mr Childs put down to excellent underwriting.

Hiscox reported a very competitive market in most lines of business, but Mr Childs said “price reductions are getting smaller”.

Hiscox also raised its interim dividend by 6 per cent to 8.5p.

Hiscox shares were down 2p in London Stock Exchange trading to 1,067p after the results were announced yesterday.