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

Wed Dec 11, 2013 10:34am EST

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(The following statement was released by the rating agency) LONDON, December 11 (Fitch) Fitch Ratings has affirmed Hiscox Group (Hiscox) core entities' Insurer Financial Strength (IFS) ratings at 'A+'. Fitch has also affirmed the Long-term Issuer Default Ratings (IDRs) of all Hiscox's holding companies at 'A-'. The Outlooks on all ratings are Stable. A full list of rating actions is provided at the end of this comment. KEY RATING DRIVERS The affirmations reflect Hiscox's strong risk-adjusted capitalisation and expectations of a continually sound record of profitability underpinned by well-diversified business activities. The ratings are somewhat constrained by the moderate scale of the company. The ratings are supported by Hiscox's strong underwriting performance which Fitch expects to be maintained. The 1H13 Fitch-calculated combined ratio was 80% (1H12: 84%), comparing favourably to peers. The stability of the insurer's performance continues to benefit from a balanced mix in its sources of earnings, combining a potentially volatile catastrophe-exposed business with lines that provide more stable earnings. Investment returns are likely to remain subdued in the low interest rate environment. In 1H13, net investment income, excluding realised and unrealised investment gains and losses, contributed GBP22m (1H12: GBP23m). However, overall net income of GBP158m in 1H13 (1H12: GBP125m) was strong and in line with the company's historical performance which Fitch expects to continue. Hiscox's reserve releases have been fairly stable in recent years, which Fitch views as indicative of consistent prudence in Hiscox's reserving. Reserve releases generally contribute more to Hiscox's profitability compared with peers, but the agency expects Hiscox to continue to reserve prudently. RATING SENSITIVITIES An upgrade is unlikely in the near term, given the medium scale of the company. A downgrade could be triggered by a considerable erosion of capital equivalent to a sustained increase in net underwriting leverage to 1.5x (2012: 0.9x). A marked deterioration in profitability compared with peers could also result in downward rating pressure. Hiscox is a specialist non-life insurance underwriting group focusing on a particular range of personal and commercial risks. Hiscox Syndicates Limited is the managing agent of Syndicates 33, 3624 and 6104. Hiscox Insurance Company Limited operates in the UK and Europe outside the Lloyd's market, covering a wide range of specialist insurance for professionals and business customers. The group's other insurance vehicles include Hiscox Insurance Company (Bermuda) Limited and Hiscox Insurance Company (Guernsey) Limited. Hiscox Ltd is the ultimate Bermudian-based holding company of Hiscox. The rating actions are as follows: 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 Ltd: Long-term IDR affirmed at 'A-'; Outlook Stable Hiscox Plc: Long-term IDR affirmed at A-'; Outlook Stable Contact: Primary Analyst Anna Bender Associate Director +44 20 3530 1671 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Martyn Street Director +44 20 3530 1211 Committee Chairperson Stephan Kalb Senior Director +49 69 768076118 Media Relations: Hannah Huntly, London, Tel: +44 20 3530 1153, Email: hannah.huntly@fitchratings.com. Additional information is available at www.fitchratings.com. Applicable criteria, 'Insurance Rating Methodology', dated 13 November 2013 are available at www.fitchratings.com. Applicable Criteria and Related Research: Insurance Rating Methodology -- Amended here Additional Disclosure Solicitation Status here 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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