Hiscox enjoys strong dollar as it lifts US reinsurance rates

Hiscox, which specialises in fine art and kidnap insurance, has raised its US reinsurance rates.

Rates for peak zone reinsurance – which cover properties exposed to hurricanes on the east coast and earthquakes on the west coast – have been increased by 15% to 25%. Other regional rates rose by an average of 5% to 30%. The USA accounts for more than 70% of the group’s reinsurance business.

Hiscox reported an investment return of about 1.3% for 2008, calculated on the average value of its portfolio. This stood at about £2.5bn at the end of the year.

“The negative return includes mark-to-market losses on prime mortgage and asset-backed US bonds which continue to perform and are expected to return on par as they mature,” the company said.

While its competitors shore up capital to deal with the collapse in sterling, Hiscox revealed that it has benefited from the stronger dollar. This has contributed to increased net asset value per share and boosted the value of the group’s capital held in Hiscox International, which is made up of Hiscox Bermuda, Hiscox USA and Hiscox Guernsey.

The company said this would benefit its balance sheet by more than £150m, although it would be partially offset by a loss in currency hedging contracts of £42m.

Duncan Hall, an analyst at Finncap, said Hiscox was likely to continue to benefit from currency fluctuations. “There is a chance the dollar will continue to strengthen relative to sterling. If an Obama package is unveiled it may flatten the dollar more,” he said.

Hiscox added that it had completed its reserving process and that its estimates of ultimate claims for hurricanes Gustav and Ike were unchanged at $25m (£17.6m) and $150m respectively. The estimates are based on industry losses of $2.75bn for Gustav and $17.5bn for Ike.