Hiscox bosses reveal where rates are rising in retail and London market businesses

Hiscox chief executive Bronek Masojada has said growth constraints on his business at Lloyd’s are worth it if it brings the market into line.

Masojada was speaking to Insurance Times off the back of filing H1 results for 2019, where improved rates helped its London market business grow by 6.6% in constant currency to $485m (£399m).

Rates across the London market portfolio were up 5% on average according to Hiscox, although Masojada said there was wide variability. Some classes were up around 50%, but other lines were still seeing rate cuts.

He said some Lloyd’s business had seen six consecutive quarters of rate growth and that the market is in a better position than it has been for some time.

Hiscox saw the most pronounced increases in US public company D&O, cargo, marine hull, major property and household. The rate increase was attributed to the Lloyd’s Decile 10 directive and the combined impact of two consecutive years of large market losses.

“What Lloyd’s is doing in terms of the Future at Lloyd’s is very good,” Masojada said. “It’s changed the weather, changed the mood music. People are accepting that modernisation has to take place and it’s a good thing. 

“Whether it’s the major risk exchange or the volume exchange, or the claims investment that is taking place, all of those will make London a more efficient and more attractive place to do business.”

Market benefit

Masojada said the Lloyd’s program had a smaller impact on Hiscox because it started reviewing is own underwriting portfolio in 2017.

But despite the review imposing constraints on growth in certain classes for Hiscox, Masojada said he fully supported the action taken.

“It’s a bit sad when the semi-regulator has to remind companies that the purpose of doing business is ultimately to make money,” Masojada said. “That’s what they were doing - they were saying you can’t keep on doing business and losing money. It’s a bit sad they had to remind us businesses of that, but I’m pleased that they did.

“I’d rather they did what they did and have a few constraints on the business, than not have them do what they did. On aggregate the whole market has benefitted from Lloyd’s actions.”

UK retail

In the UK retail business, gross premiums fell by 1.7% to $379m (£312m), but in constant currency this marked 4.3% growth.

Hiscox’s chief executive of global retail Ben Walter said that in the UK the one area that had seen increased rates was the high net worth homeowners book.

He said this primarily stemmed from an increase in escape of water claims, as a result of more people remodelling their homes and touching the pipes. He said premiums had to rise to meet the uptick in claims.

“We’ve seen this affect the whole market broadly,” he said. “We moved before the rest of the market, so we’ve been putting prices up in that area for the last 16 months or so. 

“The hard yards are now done and others are catching up to us in the market now. A year ago you would have heard complaints that Hiscox is moving up more than the market. Now we’ve plateaued and the rest of the market is moving to meet us.”

Walter said commercial lines had been competitive, balancing out the increased rates in high net worth household.

IT systems

But he said after difficulties transitioning to a new IT system in mid-2018, the main problems had been overcome and the broker-based business was back on track. He expected stronger growth to start showing as the system becomes fully embedded.

“It was a bumpy first six to nine months,” Walter said. “The first portion went in for our direct business very well, and then we put it in for our broker channel and that’s where it became more difficult. 

“We changed not only our IT system, but some of our ways of working at the same time, and that proved cumulatively to be a step too far. We had to unwind some things, fix some things and rework some things.”

Walter said 4% growth was below what he would like it to be, but that it had picked up from where it was. He was optimistic for the future off the back of good broker feedback that business was getting turned around faster.

“We’ve worked really hard on the new IT system over the last year and now we are seeing the momentum coming back because we’ve worked through most of those issues,” Walter said. “Legacy IT system transformations are tough and we had to migrate hundreds of thousands of customers and policies across the systems. 

“We had to teach 900 people a new way to work, and that’s just a big undertaking and it takes time. But it’s now bedding in and we see good momentum going forward.”

For the whole group, the first six months of the year saw gross premiums written up 7% in constant currency to $2.38bn (£1.96bn) from $2.23bn (£1.84bn) in H1 2018.

Profit before tax was up 3% to $168m (£138m) despite a higher number of claims and greater reserving after prior-year loss estimates for last year’s Typhoon Jebi and Hurricane Michael increased.