AM Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of a+ (Excellent) of Hiscox Insurance Company (Bermuda) Limited and related Hiscox companies at Lloyd’s, in Guernsey, Chicago and in the UK.

At the same time, AM Best has affirmed the Long-Term ICR of bbb+ (Good) of Hiscox Ltd (Hiscox) (Bermuda), the ultimate non-operating holding company of the Hiscox group of companies.

The outlook of these Credit Ratings (ratings) is stable.

AM Best said that the ratings of Hiscox reflect the group’s balance sheet strength, which AM Best assesses as very strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management.

The ratings of the related companies reflect their strategic importance to Hiscox as well as their integration within the group.

The ratings of Lloyd’s Syndicate 33, which is managed by Hiscox Syndicates Limited, reflect the balance sheet strength of the Lloyd’s market, which AM Best assesses as very strong, as well as the market’s strong enterprise risk management.

The Lloyd’s market rating is the floor for all syndicate ratings, AM Best said, reflecting the Lloyd’s chain of security and, in particular, the role of the Central Fund, which partially mutualises capital at the market level.

Hiscox group is an international insurer and reinsurer with good brand strength and a diversified book of business. The group has a strong presence in the Lloyd’s market, primarily through Syndicate 33, which is one of the largest Lloyd’s syndicates based on 2020 gross written premiums.

Hiscox’s balance sheet strength is underpinned by consolidated risk-adjusted capitalisation at the strongest level, as measured by Best’s Capital Adequacy Ratio. The balance sheet strength assessment also considers the group’s good financial flexibility and strong liquidity profile.

The group has a prudent reserving strategy with a long history of reserve redundancy, but, in 2019 and 2020, positive development was largely negated by loss creep from 2018 catastrophes and a strengthening of US general liability and run-off healthcare reserves. AM Best does not expect further adverse development on lines strengthened in 2019 and 2020 owing to management actions including portfolio remediation and loss-portfolio transfers.

Despite poor performance in 2019 and 2020, driven by Covid-19-related losses and reserve strengthening on certain lines discussed above, the group has a strong track record of earnings evidenced by a ten-year (2011-2020) weighted average combined ratio of 96 per cent and a return-on-equity ratio of 8 per cent. The group produced a combined ratio of 115 per cent and a loss after tax of $294 million in 2020, which included $475 million of Covid-19 related losses. Excluding Covid-19-related losses, AM Best estimates a return-on-equity ratio of 8 per cent in 2020.

AM Best expects the group’s underlying performance to continue to demonstrate an improving trend in the short to medium term, as a result of portfolio rebalancing and hardening rates in key lines in Hiscox’s London market and reinsurance portfolios.

The group reported growth in gross written premiums of 9 per cent to half-year 2021, driven by rate increases in London market business and growth in the group’s UK and Europe retail business.