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25 February 2018

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Opinion: A hard market?

Adam McNestrie 12 October 2017

Is Hiscox calling a hard market?

When you look at the £450.0mn ($594.1mn) pre-emption that the business has requested from Lloyd's for next year, it is impossible to avoid asking the question.

Has one of the most astute and successful underwriters of primary cat-exposed property and property treaty just called a market turn?

Because on the surface it certainly looks like it.

This top-quartile Lloyd's business has requested permission from the Corporation to boost the stamp for Syndicate 33 to £1.62bn, with authorisation to write substantially more binders business, cat treaty and open-market property.

This surge in stamp would make it bigger than any other single 2017 syndicate in the market except XL Catlin's Syndicate 2003.

It is a dramatic statement and looks like a big and early bet on a hard market.

But I think we probably need to look past the headline here, and try to clamber out from underneath that £450mn figure.

Hiscox isn't saying it is going to write almost 30 percent more business in 2018. It has merely asked to secure the stamp that would give it the scope to do so if it wants.

If it does not secure approval for a more expansive business plan now, it will not be able to give its underwriters the freedom to exploit market opportunities if they do emerge.

And let's also get this in perspective from the capital side. Hiscox has disclosed this move to the Stock Exchange, but there was no parallel disclosure on a rights issue or other equity capital raise.

As I remember CEO Bronek Masojada telling me years ago, Hiscox is committed to maintaining sufficient excess capital that it is able to grow post-loss without having to go to the markets to ask for more money.

And given the absence of any news it looks like it will fund any growth in exposures via existing capital, reinsurances or, potentially, third party money.

So the opportunity and financial costs of starting the engine running may actually be relatively low for Hiscox. It may not lose much by making such a move.

And then, of course, there is one final factor that must be borne in mind.

Sometimes if you want something to happen, the best way to bring it about is to go around telling people that it is happening and acting as if it is too.

Hiscox has significant credibility in the London insurance market and the global reinsurance market.

By making an emphatic statement about a hard market, it may be hoping to play a part in conjuring the reality it claims already to see.


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