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

Thu Jul 17, 2014 5:20am EDT

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July 17 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has affirmed Hiscox Ltd's (Hiscox) group 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 at the end of this comment.

KEY RATING DRIVERS

The affirmation reflects Hiscox's robust risk-adjusted capitalisation and expectations of an on-going sound record of profitability supported by well-diversified business activities. The ratings remain constrained by the moderate scale of the company.

Hiscox's core entities' ratings are supported by the group's strong risk-adjusted capitalisation, reinforced by strong retained earnings. Based on Fitch's internal assessment, Hiscox's risk-adjusted capitalisation remains comfortably supportive of its current ratings.

The ratings are further supported by Hiscox's strong track record of underwriting profitability. In 2013, Hiscox's Fitch-calculated combined ratio remained strong at 80.4% (2012: 84.1%), which compared favourably with peers.

Fitch expects the company to report a strong profit for 1H14, given the relatively benign weather to date. The historical stability of Hiscox's technical performance, reflected in a five-year average combined ratio of 87.2%, has been aided by a diversified business mix, combining both volatile and more stable lines of business.

Reserve releases are expected to continue to support results. Hiscox's reserve releases have been relatively stable in recent years, which Fitch views as indicative of a strong and relatively high degree of prudence in its reserving. In 2013, reserve releases were 10.3% as a percentage of prior year equity, which is higher than most peers.

Fitch expects Hiscox to continue to focus on growth of business outside its traditional market. Hiscox International and Hiscox Europe reported gross written premium growth in 2013 of 12.9% to GBP472.1m and 10.9% to GBP146.7m, respectively. Fitch believes that Hiscox's operations outside the UK will continue to grow, supported by the development of new product offerings and continued marketing expenditure. In 2013, all of Hiscox's underwriting divisions contributed positively to the technical result and the group's growth.

RATING SENSITIVITIES

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 deterioration in profitability, reflected in a combined ratio consistently above 97%, or a notable decline in profitability compared with peers could also result in a downgrade.

An upgrade is unlikely, given the medium scale of the company.

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

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