Hiscox 2007 Net up 18% to $471M

Bermuda-based Hiscox Ltd. posted a strong profit gain in 2007. Results, released yesterday, March 3, showed a record setting £237.2 million ($471 million) pretax profit, compared to £201.1 million ($399.5 million) in 2006.

Other financial highlights included the following:
— Gross written premiums up 6.5 percent to £1.1989 billion ($2.38 billion), compared to £1.126 billion ($2.5 billion) in 2006.
— Group combined ratio improved to 84.4 percent (2006- 89.1 percent)
— Earnings per share on profit after tax up 16.1 percent to 48.4 pence (96 cents)
— Final dividend 8 pence (app. 16 cents) per share; 12 pence (23.8 cents for the full year, a 20 percent increase.
— Return on equity 28.8 percent (2006 – 28.9 percent)
— Active capital management

As “operational highlights,” Hiscox listed the following:
–Excellent year for Hiscox Global Markets – profits increased to £155.6 million ($309 million) – £90.7 million ($180 million) in 2006.
— Hiscox UK and Hiscox Europe – good top line growth of 13.7 percent to £302.3 million ($600.4 million); 2006 was £265.8 million ($527 million) with profits of £21.8 million ($43.3 million), “despite the impact of Windstorm Kyrill and the UK floods;” 2006 was £33.1 million ($65.7 million).
— Hiscox International [which includes the Group’s U.S. operations] another successful year with profits up 33.2 percent to £69.1 million ($137.2 million); 2006 = £51.9 million ($103 million).
— Hiscox USA – acquired American Live Stock, a major milestone towards building a strong US domestic business.
— Regional business relatively stable in the softening market with good growth prospects.

Chairman Robert Hiscox commented: “This is another record result driven primarily by the excellent performance of our Global Markets and Bermuda businesses. We will continue to develop our UK and international network to distribute our specialist products, which will provide further stability to the Group.”

In his comments on the results, he also noted: “Hiscox USA established a firm foothold and the acquisition of the American Live Stock Insurance Company, now renamed Hiscox Insurance Company Inc., will give us the ability to market our policies on an admitted basis in addition to the surplus lines basis using Hiscox Syndicate 33 at Lloyd’s.”

Over the years Robert Hiscox has built a reputation as a rather iconoclastic figure in the London insurance market. His outspoken comments on the difficulties of expanding through Lloyd’s, which led him to redomicile the Group in Bermuda, helped push Lloyd’s more quickly on the road to reforming the way it does business.

He added the following comments to his analysis, which are well worth noting:

Concerning the cycle, Hiscox stated: “The insurance cycle is alive and definitely kicking and it would appear that some insurers are, as usual, suffering from rapid and severe memory loss. (How can they forget 2005 when years of premiums were wiped out?) Rates are reducing rapidly in obvious areas where there are large premiums to be competed for and the lust for non-catastrophe exposed business is turning underwriting discipline to jelly. I sometimes wonder whether underwriters who have made a 10 percent profit and then reduce rates by 10 percent think they are going to make 9 percent, instead of the obvious NIL. Any management, including the management of Lloyd’s, who sees a rising income in an area of falling rates ought to ask serious questions. It was disappointing to see the capacity of Lloyd’s reducing only 2 percent for 2008 (an actual increase at constant exchange rates) when most of the seasoned underwriters like us were reducing by 20 percent.”

Concerning the subprime crisis, he had this to say: “After a period of grace during which the banks had re-established a reputation for financial discipline, control of risk and expertise in passing that risk off to others (and insurers were widely assumed to have taken the risk off them), there is a measure of schadenfreude in their current turmoil. Critics have wondered why the insurance industry has been unable to quantify its losses almost immediately after major catastrophes, telling us that the banks can mark to market every night and know their exact exposure at any time. Not so, it would appear. It is a serious crisis, the full extent of which I do not think we have yet seen. In our underwriting books we have a very limited exposure which we have reserved fully.”

As far as the future is concerned, Hiscox is optimistic, but cautious. “We are building a long-term business and our senior management have experience of several down-cycles,” Hiscox stated. “We have spent 15 years investing considerable money in building an international network to distribute our specialist products. This will mitigate the effect of this part of the cycle.

“Our Global Markets and Bermuda businesses are most affected by the cycle and they will let those with short memories take the business off them if the price is not right. There is still plenty of good business at fair prices so they have budgeted to make a good profit in 2008. Reinsurance prices are relatively firm, so those who are reducing insurance premiums to unrealistic levels will be squeezed by expensive reinsurance and less income to pay losses.”

Source: Hiscox Ltd. – www.hiscox.com