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Hiscox posts record earnings

“Cracking results”: Robert Childs, chairman of Hiscox

Hiscox made record profits in 2016 helped by favourable foreign-currency moves and increased earnings from its Hamilton-based reinsurance division.

The group’s profits totalled £354.5 million ($440.8 million), up 64 per cent on 2015. The relative weakness of the pound helped the Bermudian firm to net foreign exchange gains of £152.4 million.

Even with the flattering impact of the currency fluctuations, Robert Childs, chairman of Hiscox said these were “a cracking set of results”.

Return on equity was 23 per cent, while the investment return was 1.9 per cent. The company declared a final dividend of 19p, bringing the full-year dividend up to 27.5p, a 15 per cent increase on 2015.

In an interview, Mr Childs conceded that political developments around the world, particularly Brexit and the election of Donald Trump and a Republican-controlled Congress in the US — had the potential to affect the business.

He said the border-adjustment tax proposed by President Trump could — if it applied to re/insurance — “have an impact not only on Bermuda, but on the industry”.

“No one knows yet what will happen yet — it’s just too early to say,” Mr Childs added.

Bermuda’s advantages as a re/insurance centre went further than tax, he added, citing Solvency II third-country equivalency in particular.

As a major operator in the Lloyd’s of London market, Hiscox is also grappling with the impact of Britain’s impending departure from the European Union and the likely loss of “passporting” rights that currently allow UK-based financial-services companies to do business throughout the EU.

“We are looking to set up a new company in Europe, in either Luxembourg or Malta,” Mr Childs said. “That could happen within the next 12 months.”

Hiscox employs more than 50 people at its head office in Wessex House, on Reid Street, where its reinsurance and insurance-linked securities division operates.

Gross written premiums for Hiscox Re and ILS increased by 29.1 per cent to £495.2 million, or 16.1 per cent when currency moves are stripped out, driven by growth in casualty and specialty lines as well as business written on behalf of the alternative capital management unit Kiskadee. The division delivered a £115.5 million profit and a combined ratio of 53.7 per cent.

Mr Childs said Kiskadee, founded in 2013, had grown rapidly and now had assets under management of $1.25 billion, putting it “firmly in the premier league of ILS businesses”.

The Hiscox London Market business generated a £44 million profit, however margins are under pressure from rates driven down by a glut of capital, according to Mr Childs and the soft market shows no signs of hardening.

Asked what was needed to turn the market, Mr Childs said: “I think it’s got to do with a combination of low margins followed by a shock loss. When you look back to 9/11, the loss was only about $25 billion, but it hit at a time when margins were very low. The margins are getting very low now.”

Hiscox’s retail operations had a stellar year, generating nearly half the group’s total profit. Retail operations in the UK and Europe doubled their profits, while Hiscox USA produced premium growth of 30 per cent.

Bronek Masojada, Hiscox’s chief executive officer, said: “This is a good result, flattered by foreign exchange and boosted by a strong investment return.

“Our retail business has come of age, driving growth and profitability for the group. This gives us options and, although there are uncertainties in both the insurance and political environments, we have the right people, footprint and financial power to adapt.

“We will remain focused and disciplined where margins are shrinking and invest where we see opportunities for long-term profitable growth.”