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July 17 (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.
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
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