July 29, 2016 / 1:11 PM / a year ago

Fitch Affirms Hiscox at IFS 'A+'; Outlook Stable

(The following statement was released by the rating agency) LONDON, July 29 (Fitch) Fitch Ratings has affirmed Hiscox Ltd's (Hiscox) core entities at Insurer Financial Strength Rating (IFS) 'A+'. Fitch has also affirmed the Long-Term Issuer Default Ratings (IDRs) of all Hiscox holding companies at 'A-'. The Outlooks on all ratings are Stable. Hiscox's subordinated notes have also been affirmed at 'BBB-'. A full list of rating actions is available at the end of this commentary. KEY RATING DRIVERS The rating affirmation reflects Hiscox's solid capitalisation, strong underwriting performance, and conservative approach to reserving. However, the ratings are constrained by the group's moderate market position and medium size. At end-2015, Hiscox's risk-adjusted capitalisation was 'Extremely Strong', as measured by Fitch's Prism Factor Based Model. The company issued GBP275m of hybrid securities in November 2015, which improved Hiscox's capital position. It is further supported by strong retained earnings and low levels of debt in the capital structure, with a Fitch-calculated financial leverage of 15% at end-2015 (2014: 0%). At end-2015 Hiscox reported a combined ratio of 85% (2014: 84%), which benefited by 13 percentage points from reserve releases in both 2015 and 2014. In 1H16 the combined ratio was boosted by foreign exchange gains resulting from a weaker sterling. This masks a slight deterioration in the underlying combined ratio resulting from continued pressure on rates and slightly elevated catastrophe experience compared with 1H15. Excluding foreign exchange effects, Hiscox reported a combined ratio for 1H16 of 88% (1H15: 80%). Hiscox has a strong track record of underwriting profitability, reflected in a Fitch-calculated five-year average combined ratio of 89%. The historical stability of Hiscox's earnings has been aided by a diversified business mix, combining volatile but more profitable products with more stable lines of business. Several years of benign catastrophe activity has helped boost Hiscox's profits, although the group has less exposure to the volatile catastrophe business than most of its peers. Hiscox's reserve releases have been consistently strong in past years, which Fitch views as indicative of a prudent approach to reserving. In 2015, reserve releases were 14% of prior-year equity, which is higher than most peers. Fitch expects Hiscox to maintain its reserving prudence. In 1H16, Hiscox continued to perform well, with its retail line being the biggest contributor to profit. Hiscox maintained strong growth in gross written premiums, particularly in the Hiscox USA division and Hiscox Re. Hiscox USA reported gross written premium growth of 33% on a local currency basis in 1H16, supported by continued marketing expenditure while Hiscox Re reported a 12% net written premium growth, driven by growth in casualty and specialty lines. RATING SENSITIVITIES Deterioration in profitability, reflected in a combined ratio consistently above 97% or net return on equity consistently below 10%, could lead to a downgrade. An upgrade is unlikely given the group's modest market position and size/scale, which Fitch does not expect to change materially in the medium term. FULL LIST OF RATING ACTIONS Hiscox Insurance Company Limited: IFS affirmed at 'A+'; Outlook Stable Hiscox Insurance Company (Guernsey) Limited: IFS affirmed at 'A+'; Outlook Stable Hiscox Insurance Company (Bermuda) Limited: IFS affirmed at 'A+'; Outlook Stable Hiscox Plc: Long-Term IDR affirmed at A-'; Outlook Stable Hiscox Ltd: Long-Term IDR affirmed at 'A-'; Outlook Stable Hiscox Ltd: subordinated debt: affirmed at 'BBB-' Contact: Primary Analyst Graham Coutts Director +44 20 3530 1654 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Ekaterina Ishchenko Associate Director +44 20 3530 1532 Committee Chairperson Stephan Kalb Senior Director +49 69 7680 76 118 Media Relations: Athos Larkou, London, Tel: +44 203 530 1549, Email: athos.larkou@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Insurance Rating Methodology (pub. 17 May 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1009693 Solicitation Status here Endorsement Policy here ail=31 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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